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Friday Market Update 9/9/2011

Blog Sep 9, 2011

This week’s wrap up:

By: Lynette Zang

On the jobs front, President Obama proposed a $450 billion jobs proposal. With 9.1% official unemployment this puts jobs front and center in the political race. At the same time, the US Postal Service announced that they are running out of money. The postal service proposed cutting 220,000 jobs by 2015; 100,000 by normal attrition and 120,000 by direct lay-offs, something currently prohibited in the union contract.

Read the article here:
http://www.bloomberg.com/news/2011-09-08/postal-unions-grassroots-clout-tested-by-planned-u-s-job-cuts.html

Also on the jobs front, Bank of America is currently cutting 3,500 jobs and there are indications that number could go up to 10,000 after they finalize a plan later this month.

Read the article here:

High volatility in the markets continues with the European sovereign debt issues (government bonds) weighing heavy on the stock and currency markets. In fact, out of the last 23 sessions, the DJIA has had triple digit moves 18 times (either up or down).

The DJIA began the week at 11,240.26 and ended at 10,992.13, down 2.2% on the week. The chart below shows another wedge pattern forming, with higher lows and lower highs. You can see that we are sitting right on the bottom line, but no breakdown yet. I’ll keep you posted.

The dollar, on the other hand, had a pretty good week. To continue from last weeks report, the dollar did breakout above the wedge, starting the week at 74.48 and ending at 76.25, a gain of 2.38%. Keep in mind that when there is a top breakout the price action is most likely to continue up until it hits the next level of resistance, which is just what the chart below shows. The dollar is bumping up against resistance at 76.80ish.

The one-year Greek bond is trading at and interest rate of near 100%, which suggests Greece could default. The concern is that they have not been able to meet any of the criteria agreed to for the first bailout, and that the depression their economy is in isn’t generating enough revenue to enable them to even meet a small up coming roll over of bonds.

With Germany’s parliament upholding the legality of the EU’s bond buying program, but putting in a caveat that any additional support would need to be approved by parliament; and with Germany having a greater say in how the bailout recipient structures their fiscal house could position some very interesting debates in the future. This morning a key German figure resigned over differences in his view of the program.

Understand that when any central bank steps in and buys government bonds from banks and/or insurance companies or other entities, it is a pure transfer of liability. Everyone expects Greece to default. This means that no one expects them to repay their government bonds. At this point, most of those bonds are owned by private banks. Once the second bailout is complete, the taxpayers will assume 76% of the liability according to the think tank Open Europe. The market response is negative in both the European stock markets and the Euro.

The following chart shows you the breaking down of the Euro, which broke a key support level yesterday. Remember, when you break a bottom support level, the next most likely price action is down.

In more currency news, Chinese officials announced that their currency, the yuan, will be fully convertible by 2015, a year ahead of schedule. That means that it is widely used in international trade, bypassing their use of the US dollar in transactions. This needs to happen in order for the Yuan to be used in the SDR, the global currency created and injected into the global central bank reserves by the IMF, which is what China wants. Just remember that the Yuan is still a fractional reserve currency, created by debt and supported by the ability to create more debt.

So let’s look at the only currency with no debt attached, gold. Gold began the week at $1,876.90 and closed at $1,859.50, down 1% on the week, but giving that 200 day moving average a chance to catch up. So we are now only 17.7% above that moving average. Still a little overbought (not over valued) but very good consolidation (moving from weaker hands to stronger hands) while remaining at those higher levels. You can also see that gold tested (went up to) a previous high above $1,900 but needs to complete the consolidation before it’s ready to break out above that resistance level.

Thus closes another exciting week watching history unfold before us. And as uncertain and scary as it may seem, it is simply a repetition of history. We can use this knowledge to our advantage since many remain in denial. As Einstein once said, “A man should look for what is, and not for what he thinks should be.” This is a currency lifecycle issue, which is “what is.”

Thumbnail Photo We believe that everyone deserves a properly developed strategy for financial safety.

Lynette Zang

Chief Market Analyst, ITM Trading

Sources & References In This Article

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