22nd June - The German Bund and the Greek crisis
22 June 2015
TECHNICALS:
Weekly chart
The market is sitting right on the long diagonal support from 2011.
Note too, the close support from the Prior High at 146.89 which has yet to be tested.
There is no major breakdown yet.
There is powerful support between 146.90 and 148.50.
Bears, in anything other than the short-term, need a confirmed break beneath 146.90.
Daily chart
This is less clear.
The bear rising wedge drove the market beneath the Prior Low 151 – but the market was clearly reluctant to stay beneath that level.
Bulls need a break first above the falling diagonal. But better still, they need the creation of a good reversal pattern…
And there’s not one in sight
FUNDAMENTALS:
Eighteen months or so ago when the Eurozone sovereign debt crisis was in full swing, with Greece, Ireland, Portugal, Spain et al queuing up for emergency assistance, the German bund was a hot bull market, as were UK Gilts and US Treasuries.
The IMF/EU/EZ/ECB had put together financial assistance packages in return for austerity measures designed to reduce the debt burden of the above and nearly all bar one have registered varying degrees of success, with Ireland the stand out success story.
That crisis, until earlier this year, was assumed over. The ECB had provided enormous financial assistance to the afflicted Banks, finally culminating in March this year with the start of a substantial QE program, which has seen Eurozone deflation turn to inflation, albeit still very low.
But Greece has failed to recover despite repeated emergency rescue deals. Austerity has hit the Greek economy and people hard and early this year they voted in a government with a mandate to renegotiate the terms of the rescue deal. But the creditors, the IMF, EU, Euro zone and ECB, are not prepared to agree to the terms demanded by the Greek Government.
The situation now is Greece stands on the verge of exiting the Euro and becoming bankrupt. Although the Greek economy is one of the smaller Euro zone economies, bankruptcy will have an impact beyond Greek borders.
Moreover a Greek exit from the Euro could prove a defining moment for the Euro. When launched the Euro was declare irreversible, it was meant to be for ever.
But if Greece leaves, clearly that would not be the case. There would be speculators looking around and asking who is next?
There are several candidates.
The Italian economy remains a mess. France has seen little or no growth for several years and Spain and Portugal remain vulnerable because all have challenging debt to GDP ratios.
The question that begs asking is why is the Bund not a roaring bull market? The Bund has staged a rally in recent days as the “moment of truth” nears, but the price action can hardly be described as bullish, it is a correction in what is a bear market. Clearly, were it not for the Greek drama, Bunds would be very much lower.
Possibly the currently strength means that traders assume a last minute compromise will be found to help Greece and avoid “GREXIT” and Greek bankruptcy. Compromise is something the EU has been famous for throughout its history. Or maybe markets have failed to fully appreciate the wider fall-out from Greece defaulting?
We judge the Greek crisis is too difficult to call. EU finance ministers are meeting in an effort to reach a deal they can put before an emergency summit. As things stand Greece might be the first Country to leave the Euro, default on her debts and become bankrupt. How would the Bund react? I think it is already showing us. The Bund is currently pausing in a bear market.
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25th June - Watch the poised European Blue Chips 
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5th June - Is it all over for US Bonds?