I sometimes fear that we worry about the wrong things when it comes to the financial markets. There are always swags of things to think about and it can cover any timeframe that you care to name from where the Aussie will be trading in 10 minutes time to the long-term trends in employment and the technological factors that will be impacting them in the next decade and beyond. I was doing some reading last night though and a troubling thought occurred and I realised (as many had before me) that from an economic standpoint the damage that we do in the short-term may not be visible for some time. Often we see lagging impacts like the standard impact of moves in monetary policy taking 18 to 36 months to be felt. By some time in this case though I mean years and years but the impact will no doubt be devastating.
"The emergency manager appointed to put Detroit's troubled public school system on a firmer financial footing said on Thursday he was sending lay-off notices to all of the US district's 5466 unionised employees.
In a statement posted on the website of Detroit Public Schools, Robert Bobb, the district's temporary head, said notices were being sent to every member of the Detroit Federation of Teachers "in anticipation of a workforce reduction to match the district's declining student enrolment".
You could look at this and say that it's a problem in an isolated area of the US which is suffering due to a specialist workforce and lower demand. As I understand it though, since the GFC in the US the number of teachers sent packing has totalled into the hundreds of thousands. My point here is the short-term benefit (fiscal saving) is going to be so greatly outweighed maybe decades into the future by a less educated workforce. It appears that the line in Gladiator is correct - what de do in life does indeed echo in eternity. I think that this is a particularly nasty example but the takeaway from it is that even though we spend our time looking at charts and headlines we must all make the effort to look at what the impact of fiscal decisions made today will have on the immediate, mid and long-term future of the country.
If you think of examples like this it makes the amount of bluster that we see all around the world focused on things like pro or anti Keynesian policy seem that much more ridiculous. Don't get me wrong, I think that is one of the most interesting economic arguments around (not that that is saying much) but rather than blindly picking sides I think you get a lot more out of economics if you are more discerning with your choice of which policy is good and bad - not just politically irritating or politically agreeable.
Now back to the short-term.
Depending on which market you were watching last night the volatility flood gates were opened wide - at least for a few hours.
In my post yesterday I discussed to broad downtrend in the EURUSD but noted that there as some room to move upwards without threatening the prevailing bear trend. You can see in the chart above the Euro did indeed break the descending triangle to the upside but didn't make any real ground before getting crunched once again. The S/R level drawn in at 1.2444 is basically the level to watch now. It has been a good support level and so I would expect to be the near-term resistance for the immediate future. Also note that the 1.25 SD level of the 200 period moving average is once again on the price so you would want to see a break of that level before thinking about a shift in short-term direction.
You would imagine that the session tonight could get pretty sporty again for markets - there are roughly equal quantities of impatience, boredom and anxiety in the mix at the latest Euro summit. Again I would suggest that the market has invested a huge amount of negative into the area so there could be a big response if good news is released but banking on that would be a bridge too far for most people.