Tuesday, August 14, 2007

Zzzzzzzzzzz... Same Story, Different Day

Euro-Zone Economy Slowed Sharply In 2Q
LONDON (Dow Jones)--The euro-zone economy slowed sharply in the second quarter of this year, growing at its weakest pace since the first three months of 2005.

Although surveys of business sentiment and measures of new orders suggest the economy may rebound in the third quarter, signs that the upswing that took hold last year may be running out of steam will increase the likelihood that the European Central Bank is nearing the end of a series of interest rate hikes that began in December 2005.

According to figures published Tuesday by the European Union's statistics agency Eurostat, gross domestic product in the 13 countries that comprise the euro zone expanded 0.3% from the first quarter and 2.5% from the second quarter of 2006.

Of course then the Euro tanks and the destitute US Dollar is the immediate beneficiary. That is until this mornings PPI numbers are released. These numbers should suck...or they may just be more US Government "magic" that declares inflation is benign. That would be a good thing though. If the magic shows soft inflation numbers the Fed would have more room to give the crybabies on Wall Street the interest rate cut they're wailing for. And in so doing clobber the Dollar and assist Gold in it's accent to the heavens. Hey, Gold Bugs are allowed to fantasize too.

Currency swap expected from Fed and ECB
Central banks are expected to continue intervening in the money markets on Monday in an effort to unblock the financial system after last week's turmoil.
Investors braced themselves for further turbulence and speculation is mounting that the

European Central Bank will seek to arrange a currency swap with the US Federal Reserve that would allow it to lend dollars to European banks struggling to meet short-term dollar funding needs.
Billions in dollar-denominated borrowing by European banks comes due in the next few days amid fears that US banks are unwilling to extend short-term credit to some of their European counterparts perceived to be vulnerable to the market turmoil.

The Fed is likely to be sympathetic to an ECB request for a currency swap since it would be seen as a helpful way of dealing with pressure on the overnight federal funds rate caused by European banks' thirst for dollars. It would be the first such arrangement between the world's two biggest central banks since 2001.

I assume this would explain Monday's "strength" in the US Dollar and thus Gold and Silver's "day of rest". If the above currency swap report is accurate, a "false demand" for Dollars by European Banks to cover their butts was propping the Dollar up yesterday. Combine that with the weak Euro Zone GDP numbers this morning and the Dollar once again has the "false hope" of avoiding the axeman awaiting it at USDX 80.

Fear of World Economic Armageddon appears to have put a floor under Gold at 658-60. The near term key for Gold now is to close above 673. The uptrend off of the June 26 low remains intact despite the challenge posed to it during last Thursday's and Friday's panic attack. This mornings PPI Report should get this stick out of the mud one way or the other this morning.

Silver... Silver is simply adrift. Nothing happens for the Silver Bulls until they regain firm control of Silver's 50 day moving average. Period.

Oil as expected has come to rest at it's 50 day moving average. I expect further risk to the downside to be minimal with SOLID support at 67. Hurricane Dean should be throttling up by Friday and threatening the East Coast. Oh joy. It was amusing to see Oils reaction Monday to NOAA weather reports concerning Tropical Depression Four. Oil rises on the news and then sells off as soon as the forecast eliminates the Gulf from the storms path. You have to be crazy to trade oil. Should a Hurricane enter the Gulf this summer Oil will hit $85. Even if it never makes landfall. You heard it hear first.

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