Tom Fitzpatrick continues:

“At the end of the day you are getting a sovereign nation that people are already concerned about in terms of their borrowings.  Now Spain is looking to borrow even more money to give to the banks.  You are not getting a European type of solution.  So we saw a lot of euphoria on Sunday night and early Monday, but that seems to have dissipated.

We just had the announcement that Moody’s is downgrading Spain, so equity markets came off late in the day.  At the same time we’ve seen the yields in Spain and Italy go straight up again, pushing right back towards the trend highs....

Continue reading the Tom Fitzpatrick interview below...


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“Equity markets, while they had a little bit of a bounce, there has been no real follow through.  So our sense when we look across our charts is this is yet another over-promise, under-deliver dynamic coming out of Europe.

Overall, everything we look at suggests to us that things are going to get worse in Europe before they get better.  When we look across the whole spectrum of our equity charts, fixed income charts, and our FX charts, they all suggest to us that the quarter ahead should be quite a turbulent one.

This means we should see even lower levels in yields, flatter yield curves, lower equity markets, and a firmer US dollar.  Our sense here is we are moving to the point where we’re no longer going to be able to see the stabilization on false promises and under-deliveries. 

If Europe is not going to take some decisive action here then it’s likely to get worse, and fear is a very motivating tool.  I think if they (central planners) get more fearful, then maybe they will get more responsive in terms of the reaction, but at the moment they just don’t seem fearful enough.

So as I said, our bias is that we are still going to continue to see the dollar perform well.  Investors are still focused on event risk and headline risk, one of which is obviously the Greek elections coming this weekend.  So I think what you are seeing at the moment is people getting defensive ahead of that.

But overall nothing has really happened in any way that impinges on the overall trend.  We still have this medium-term downtrend channel in place for the euro, which has a base of somewhere down around 118.70 on the euro/dollar.  We believe we will push down there in the weeks and months ahead.

We have believed and still believe that we will see below 120 (on the euro), and we still think it’s conceivable that we could be looking at a move down towards the 110 to 115 area.  Now the US dollar index is 57.6% the euro, and over 75% European currencies, so if that overview is correct, we’ve got to expect to continue to see the US dollar index showing strength going forward.”

Fitzpatrick had this to say regarding gold:  “We still hold the same view on gold both technically and from a big picture perspective.  We think gold held some very good levels down in the low $1,500s.  It still looks like a triangle consolidation where we had a weekly reversal at the lows.

We’re still looking at the key levels at around $1,720, and then at $1,790 for the breakout on gold.  This should propel gold to $2,015, and we still believe gold will hit $2,400 on this move.  So we still believe we are going to see significantly higher levels over the course of this year.”

When asked if the attention of global investors will shift to the problems in the US as soon this whole flush in Europe is completed, Fitzpatrick responded, “That’s our sense.  We feel unless and until, and we do think it’s an until, we feel eventually we’ll get to a point where Europe is prepared to put in the type of measures that really do ring-fence the systemic dynamics of this crisis.

Our bias is certainly to feel that once that happens, and we feel that could be sooner than later, possibly 3rd quarter into 4th quarter of this year, when that happens and when that systemic dynamic is ring-fenced, we would not at all be surprised if at that point the focus starts to switch back to the US.”

While European problems and markets remain the primary focus, contributing to strength in the US dollar index, Fitzpatrick also pointed out this critical breakout in the US dollar vs the Japanese yen.  Here is the extremely important 20 Year Chart of the two currencies:

From Fitzpatrick’s report on this key development: “The move to new trend lows in November 2011 followed by an impulsive move higher and break of the longer term trend line resistance remains similar to what happened in 1995 after the Kobe earthquake.  We continue to expect higher levels over time and would argue that the present pattern is very “inverted head and shoulders like” with a neckline at 83.82.  A break above here would ultimately suggests a move as high as 93. Interim resistance is met at 87.38 (200 week moving average).

Overall our bias remains that this move higher will come from a combination of a firmer USD and resistance from Japanese authorities towards broad based JPY strength.”

What this means is that until we see the focus shift to concerns about the US and the very serious problems it faces, the trend for the US dollar may very well remain higher.

© 2012 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

The interviews with John Embry and Bill Fleckenstein are available now.  Also, be sure to listen to this week’s line-up of other KWN interviews which include Egon von Greyerz, Nigel Farage, Michael Pento, Dr. Stephen Leeb, Don Coxe ($538 billion BMO), Art Cashin ($612 billion UBS) and Rob Arnott (oversees $100 billion) by CLICKING HERE.

Eric King

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rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

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