It was six weeks ago that we wrote in our daily commentary that the one-sided nature of the short side of the EUR had become so egregiously extended that a rally back toward the 1.1000-1.1200 level would not be all that surprising. We were not sufficiently certain of that fact to suggest going long of the EUR, but we were sufficiently certain enough to suggest… even to officially recommend… swapping gold predicated in EURs for gold predicated in Yen denominated terms, which was effectively an endorsement of a potentially stronger EUR. That strength has now come to pass with the EUR trading to 1.1245 at one point last Friday. We draw attention then to the chart of the EUR noting that the well-defined downward sloping trend line is now offering very real, very concerted and we think very proper resistance to any further strength.
Turning to the “fundamental” news of the past week, perhaps nothing is more important than an interview that Greece’s Finance Minister, Mr. Varoufakis, gave to the media last Saturday. He said that in his opinion Greece can get by without a new bailout, but that “one of the conditions for this to happen … is an important restructuring of the [current]debt.”
However, at this point all of the members of the Brussels Group considered that impossible. Concerning the EUR itself, Mr. Varoufakis said of the Eurozone that it is “a shaky common monetary system [that]if not changed, will die,” but at the very same time he dismissed the possibility of exiting the EUR saying that it is “One thing to say we shouldn’t have joined the euro and it is another to say that we have to leave [because that would lead to]an unforeseen negative situation“.
As for gold, we simply note that the open interest in gold futures trading rose sharply late last week as prices fell. Open interest rising as prices are falling is a manifestly bearish circumstance. Those long of gold in US dollar terms must needs be aware of that fact.
This article was written by Dennis Gartman. Gartman is editor and publisher of The Gartman Letter, and a strategic partner with the AdvisorShares Gartman Currency Hedged Gold ETFs (GEUR & GYEN) who lends his institutional insight to educate advisors and investors about trading gold in different currency terms.