Technically speaking, first-line resistance in the USD near the 75 level has now been overcome while 76 and 76.70 still loom above. The US currency might receive a possible additional boost come Thursday; that’s when Mr. Trichet might announce that he is placing interest rate hikes on the back burner for the time being, given the drama (still) unfolding across the Old World that is making for plunging confidence levels.
What else plunged? Well, the Swiss franc sure did. And then some. So did commodities, overall. This was reflected in the S&P GSCI index dropping as much as 2.1% to its lowest value in more than a week. Coffee was…burned with a 1% and up to 2.5% decline and you can say the fact was almost welcomed by the throngs of returning-to-work traders who feel as if they might need many gallons of it in coming market sessions if they are to survive.
The Swiss National Bank finally drew the official line in the currency market’s sand and declared that it will not tolerate a euro-franc rate beneath the 1.20 level. Period. The SNB also declared that it stands ready to buy virtually unlimited amounts of foreign currency in order to make good on its words and intentions to curb the unwelcome rise in the country’s currency. Welcome back to the almost-forgotten currency wars of circa one year ago.
We have now seen Japan and Brazil also fire their own opening salvoes in this developing global market skirmish over recent months. However, the SNB today, pulled “Big Bertha” out of the hardened silo. Take cover. Much of gold’s falling away from its overnight price peak had to do with sellers who took a licking in the Swiss franc and had to cover losses in their positions with the disposal of some of the so-called ultimate liquid asset. Then again, one of the principal reasons to hold the metal is precisely to mitigate potential unforeseen losses in other assets.
Of course, some of the franc’s recent gains came at the expense of the euro; that much has been made eminently clear by investors voting with their pocketbook. However, despite the incessant calls and warnings that the euro is about to succumb, and/or that the very union that Europe has cobbled together is about to unravel, the fact of the matter is that – as the IMF’s European unit head, Antonio Borges recently said – what is needed is “more Europe, not less.”
The Old World is apparently drawing closer to a fiscal union, rather than moving further away from it, as certain doomsayer publications would have it. While the reality of a European Treasury is still at the drawing board stage, one ought not to dismiss it as wishful thinking. Recall that, at one point, the idea of a united Europe was also seen as fantasy by many. Spending money under a concerted guidance; what a concept! Well, at the very least, it might avert the misspending of billions on certain apparently mismanaged endeavors…
As we look ahead at the likely-to-be-stormy-once-again week in the making, one item that is worth keeping on a sticky note: The first meeting of the bipartisan congressional committee to cut US deficits takes place on Thursday morning. The “Supercommittee” of 12 will try to come up with a $1.5 trillion slashing of the deficit. In play are sacred cows such as entitlements and taxes. Bonne chance, we say.
Jon Nadler is a Senior Metals Analyst at Kitco Metals Inc. North America