Global Macro: Clarity Within The Euro

Includes: FXE, GLD, IEF
by: Andrew Sachais

I felt compelled to write an article surrounding the day's events with relation to ECB monetary policy. The following assets, with respect to 10 year treasuries (NYSEARCA:IEF), have come upon the point of apex. This is fitting because a much awaited rates decision looms. I put the assets over 10 year Treasuries to smooth them out, and price them in terms of an ant-inflationary asset. Both gold (NYSEARCA:GLD) and the euro (NYSEARCA:FXE) have traveled similar paths, and experienced a distinguished run up as of late. Both assets are currently straddling the fence of their trend lines, waiting for impending decisions.

The euro has traded higher on ECB stimulus measures and the belief that heavily indebted countries still stand a chance. The pullback following these announcements revolves around the fact that Spain and the Union have yet to put a pact in place. Upon reaching a definitive agreement, respective yield premiums should slightly diminish, and the euro should rise. The ratio below is squeezed between the 50 and 200 day moving averages. It will not stay here for long, and upon the days announcements, should breakout. The current consensus is that rates go unchanged, and with greater clarity into the ECB's thought process, the euro could spike.

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The asset that has similarly traded with heavy correlation to the euro pair is gold. Gold has resumed its role as an inflation hedge, and currently trades alongside other risk assets. It had its spike following central bank easing measures, but subsequently pulled back to the trend in recent weeks. The ratio is reaching its apex, and with consideration to the euro situation, as well as the overall trend still being up, look for gold to spike near term on a favorable ECB decision.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.