There have been massive moves in the Commodity Futures Trading Commission's commitment of traders report toward the long side of the euro/dollar currency pair (Eur/Usd) over the course of the last month, which has instigated head-scratching from those looking for peripheral eurozone economies to drag the EU into an abyss that would devalue the euro.
Tenured traders will have noted that although there are many reasons to expect revisions to Eur/Usd values, there is in fact a much stronger force than economic outlooks in play. This has gold momentum and sentiment impacting euro valuations far more than GDP, banking exposure, and growth forecasts over the long term.
The charts below highlight the massive correlation that has been seen on a daily chart basis between gold bullion (read GLD) movement, and the subsequent movement in euro-dollar valuations. It would seem that on an intraday basis breaking news headlines and economic outlook reports can impact euro trade direction, but ultimately all the time that the Federal Reserve is manipulating dollar valuations via its printing press, the moves in gold bullion trade are dominating Eur/Usd valuations.
There was very little media attention given to news Friday that Ireland's 2011 GDP was revised from 1.7% to a forecast of 0.8%. This news indicates more stimulus and bailout funds will need to be allocated to the Emerald Isle. Even less attention was given to a Dow Jones Newswires report that the European banking system still has an insolvency question to answer.
The Dow Jones headline said large swathes of European bank restructuring are yet to come, that distinct vulnerabilities remain in the European Union banking sector, that rollover risk still persists in sovereign debt markets and that private creditor liability has been badly received.