In much the same way that markets awaited the first week of September to see the market spring back into life and into the second week for the announcements and measures that would set the tone for Q4 we now await the next peak or trough on the rollercoaster.
Last weeks’ information has been digested and markets looked on Germany, The ECB and The Fed as positive for risk but not so positively that they feel we should shoot for the moon and stars.
The Euro has been on a huge rally that has taken it 1100 points higher from the low seen in July. A correction of 50% of that rally would be a popular technical view and the pullback from the high has to some extent already started that move.
Although technical trading amounts for a very high percentage of the retail market the catalyst for moves always has its roots in the fundamentals.
You can always read………once this happens the move should extend to……. Or once we see…..then the correction will hold…….
These predictions from charts need a catalyst and that catalyst is event driven.
So what is going to get us back to 1.2610 (50% retracement of the move from low to high)? The answer has to come from Europe as the U.S. in much the same way as the U.K has both all its cards on the table and all its bad news in the public domain.
In Europe it is clear that the events of the past two weeks have had the desired effect (in the short term) of lowering sovereign borrowing rates in Spain and Italy but this is an artificial phenomenon which needs domestic action within those countries for it to become anything more.
The best example is Greece. The politicians of the new Government can put in place any austerity package it wants to buy more time from the troika but in the end it is the people who will decide and the volatility of the “Greek Man in the Street” leads me to believe that Greece will need a further bailout and may well exit the Euro at some point.
However an event closer to fruition is a bailout request from Spain. Rumours are already circulating that the IMF and European Commission have been asked to provide funds but once this becomes official it will be the event catalyst that the market requires.
So why wait? It is surely inevitable that Spain will ask for a bailout although it still says it is looking at the terms etc. of the bond buying scheme put forward by the ECB.
The pause is simply the punctuation mark that allows short term traders to play both sides of the market before the tidal wave of one directional trading becomes reality.
The direction of that move will be determined by a fundamental event and that train will soon leave the station.