A Disaster Foretold
NATO Prepares for a Trumper Tantrum
NATO is preparing for a contentious summit this month, primarily due to the posturing by U.S. President Donald Trump ahead of the meeting. He has made it clear that he is unhappy - and Berlin is target number one. By DER SPIEGEL Staff
There's probably nowhere in Berlin more symbolic of U.S. solidarity with the Federal Republic of Germany than the former Tempelhof Airport. This summer, there will be celebrations at the site, now a massive park, to mark the 70th anniversary of the Berlin Air Lift, the spectacular aid effort by the U.S. Army from June 1948 to May 1949 to supply 2 million Berliners cut off by the Russian blockade.
This was the site chosen by the U.S. Embassy to host its Fourth of July party last Wednesday.
"Tempelhof is one of those landmarks that show how much we mean to each other," said the outgoing chargé d'affaires. And U.S. President Donald Trump's new man in Berlin, Richard Grenell, said he felt humbled in the presence of so many people dedicated to trans-Atlantic relations.
It wasn't just the setting that was historic. The evocations of German-American friendship also seemed to come from the distant past. Ever since Donald Trump became U.S. president a year and a half ago, the trans-Atlantic relationship is no longer what it once was.
Trump has made it very clear that agreements, rules and traditions mean nothing to him. He ruthlessly puts the national interest -- or at least what he perceives as national interest -- ahead of an international order that was developed over the course of decades. He abandoned the Paris Climate Accord, ended the nuclear deal with Iran and thwarted WTO rules to impose tariffs on steel and aluminum from Europe.
At NATO, the trans-Atlantic military alliance, there is fear now that he will soon take the next destructive step, and Washington's European allies are nervously anticipating the forthcoming summit next week in Brussels. Most alliance members outside of the U.S. expect Trump to pick his next fight at the meeting. "NATO is facing its biggest crisis since its founding," said former NATO secretary general, Anders Fogh Rasmussen. He says he is concerned that the NATO summit could end up being as big a disaster as the G-7 was. Specifically, Rasmussen is worried about Trump sparring publicly with his allies before paying court to Vladimir Putin four days after the NATO gathering, when he is scheduled to meet the Russian president in Helsinki.
It is most likely that the U.S. president will turn on those allies who are not fulfilling the NATO goal of spending the equivalent of 2 percent of their GDP on defense by 2024. In particular, Trump has Germany in his sights -- and not completely without reason. Berlin currently invests 1.2 percent of Germany's GDP in its military, and the government has said that by 2024 it will reach a maximum of 1.5 percent. There are those in NATO who feel that the U.S. president may threaten consequences if Germany and other allies do not make greater financial pledges. No one believes it was a coincidence that the Washington Post recently reported that the U.S. was considering pulling its soldiers out of Germany.
It's possible that Trump is also questioning the deployment of U.S. troops elsewhere in the world as well. He has let his allies know that he finds it increasingly difficult to justify to the American people why their soldiers are risking their lives when some countries do not share the common defense burden.
And here too, Trump has a point: The Afghanistan mission alone cost the United States 80 times more than Germany. Over 20,000 U.S. soldiers were wounded and almost 2,000 died in battle. In contrast, 204 German soldiers were injured and 35 were killed.
Many Points of Contention
The worst-case scenario envisioned by Europe involves Trump calling into question Article 5 of the NATO Treaty, which holds that an attack on one alliance member is an attack on the entire alliance. Ever since Trump's election, the issue has been looming over NATO headquarters. Should he do so, Europe would then have to take care of its own protection, including the nuclear deterrent.
Still, it won't be the fault of NATO Secretary General Jens Stoltenberg if the summit ends in disaster. The Norwegian has planned the gathering down to the minutest detail, visiting the capitals of all NATO allies and preparing the draft documents. The focus, of course, is the 2-percent target on defense spending.
Beyond that, the alliance wants to agree on being able to increase troop numbers in Eastern Europe more quickly and efficiently should the need arise. The leaders also want to agree on the "NATO Readiness Initiative," which envisions the capability by 2020 of deploying 30 battalions, 30 battleships and 30 aircraft squadrons within 30 days or less.
But because of the many points of contention, Stoltenberg believes it is entirely possible that the summit could end in failure. The secretary general has instructed his staff to prepare for a variety of negative scenarios, including a premature departure by Trump -- as happened at the G-7 summit in Canada -- or an angry speech by the U.S. president or even a Trump announcement that he is leaving the trans-Atlantic alliance.
Trump's Watchdog
The most important thing, Stoltenberg has made it clear, is that the remaining allies present a united front. Yet without U.S. military might, the alliance would be as "obsolete" as Trump has claimed it is.
The president already demonstrated to his allies how little he thinks of diplomatic niceties when he visited NATO last May. "Twenty-three of the 28 member nations are still not paying what they should be paying," he complained, adding that they owed "massive amounts of money." The U.S. president sounded like he was lecturing a group of unruly schoolchildren.
At a rally in Great Falls, Montana last Thursday, Trump made it clear that his thinking hasn't changed. "Germany, which is the biggest country of the EU ... Germany pays 1 percent. One percent. And I said, you know, (Chancellor) Angela (Merkel), I can't guarantee it, but we're protecting you and it means a lot more to you than protecting us because I don't know how much protection we get by protecting you."
Berlin is bracing itself for similar hectoring at the summit -- a continuation of the kind of treatment received by German Defense Minister Ursula von der Leyen during her recent trip to Washington. A member of Merkel's center-right Christian Democrats, von der Leyen had actually gone to explain to the U.S. government why Germany would not be able to reach 1.5 percent by 2024. At the same time, she was armed with facts and figures to show how deeply the German military was engaged in the alliance.
But that didn't help the atmosphere. For one thing, U.S. Ambassador to Germany Richard Grenell surprised the Germans by flying to Washington to take part in all of the minister's discussions there. It was an unmistakable gesture: Donald Trump's watchdog was there to make sure that Berlin did not get off lightly.
Grenell left the attacking to John Bolton, Trump's national security advisor. Von der Leyen spent almost an hour in Bolton's narrow White House office, ensuring him that she had used almost all her political capital to push for an increase in defense spending.
Bolton listened, his staff diligently taking notes. But von der Leyen was unable to persuade the hardliner, and shortly before the end of the meeting, Bolton made the U.S. viewpoint clear, explicitly saying he was speaking in the name of the president. German engagement was nice, he said. But for the former businessman Trump, "only cash" mattered. Because Berlin hasn't delivered on that score, Bolton said, Trump was quite angry.
As she was leaving, von der Leyen was given a letter, sealed and addressed to Chancellor Merkel. It was immediately apparent to the minister that it was unlikely to be a diplomatic declaration of friendship.
The damaged relationship between Berlin and Washington was evident right at the beginning of the letter. Instead of the usual hand-written salutation, Merkel was addressed with the type-written "Dear Ms. Chancellor." In diplomatic correspondence, it doesn't get any frostier than that. The letter was signed with Trump's mighty signature.
Sharing Trump's Unease
The brief text was extremely clear. There is "growing frustration in the United States that some allies have not stepped up as promised," he wrote. The fact that some European countries, including Germany, were not prepared to spend more is "no longer sustainable for us."
The letter makes Trump's disdain for Merkel unmistakably obvious, and he even accused her of turning other EU states against him. "Continued German underspending on defense undermines the security of the alliance and provides validation for other allies that also do not plan to meet their military spending commitments, because others see you as a role model," he wrote.
When the letter first arrived in Berlin, it left many experts in the government speechless. They then learned that other EU allies and Canada had received similar letters from Trump, but that they were more moderate in tone. That has led German officials to believe that Berlin could become Trump's primary target at the NATO summit.
There are, though, many in Berlin as well who agree with Trump on this issue. "I also worry about the future of NATO," says Alexander Graf Lambsdorff, deputy floor leader of the pro-business Free Democrats. But that's not just the U.S. government's fault, he argues. "An SPD foreign minister signed up to the 2-percent target and naturally Germany has to fulfill it at some point," Lambsdorff says. "Trump's letter is understandable," says Roderich Kieswetter, a defense expert for the Christian Democrats. "The U.S. president is essentially only criticizing Germany for the same thing his predecessor criticized it for."
According to the latest research by the German Council on Foreign Relations and the German Institute for International and Security Affairs an increase of military spending to 2 percent of GDP would require an extra 6.8 billion euros budgeted to the military each year. By 2024, that would be 85 billion euros, almost 30 billion more than either France or the U.K. spends. It would be the second biggest defense budget in NATO after that of the United States.
A Long-Running Dispute
The truth is, the dispute about the cost of freedom is as old as the Western alliance itself and it has always been intense. The roles have also always been the same: The Americans push, the Germans push back. The German contribution was "excellent," Chancellor Helmut Schmidt insisted back in the 1970s while his finance minister, Hans Matthöfer, made the searing comment that unlike American GIs, German soldiers had an "average level of intelligence." They could, Matthöfer said, "all read and write" and didn't have any drug problems. These things should be taken into account, he said, when comparing defense budgets.
Even Konrad Adenauer, Germany's first postwar chancellor, was reticent on defense spending -- and when he was confronted by Washington, he simply claimed he knew nothing about the requirement. In 1977, Schmidt's government promised to increase defense spending by 3 percent annually. Every year he and his ministers would said they would stick to this promise, yet every government up to the fall of the Berlin Wall failed to do so.
In contrast to the past, however, there is a president in Washington who is prepared to actually cast doubt on the future of the Western alliance if German spending doesn't improve.
Aside from the budget issue, Merkel is expecting that Germany will face additional criticism at the summit as well. The SPD, for example, is vehemently opposed to the German army taking part in a NATO operation to train troops in Iraq. Almost every other NATO ally has already signed up for the operation.
The German military is, to be sure, planning on taking part in two other training projects in Iraq, missions that involve German experts flying in from Jordan to help train Iraqi officers and a mine clearance team for six to eight weeks at a time. But due to SPD objections, the German mission is considered part of the coalition against Islamic State and is not subject to NATO command.
Tenuous German Narrative
It is a model that has raised hackles among several NATO allies. In a private discussion recently, the normally stoic NATO secretary general, Jens Stoltenberg, told German defense experts that no one in the alliance could understand why Germany wanted to engage with Iraq but expressly not with NATO.
The Bundeswehr's current problems also play into Trump's hands. It was only two weeks ago that the German navy had to withdraw from military commitments to NATO because its two remaining tanker ships had become so old that they needed to be repaired. Such incidents don't exactly help the German narrative, which holds that Berlin is doing its part militarily even if its defense spending isn't to snuff.
The U.S. president knows how to heap pressure on his allies and he sees the U.S. soldiers stationed in Europe as his biggest trump card. According to the Washington Post article, the Pentagon is currently studying how expensive it would be to withdraw or move a large part of the 35,000 troops stationed in Germany.
The article surprised many in Berlin. Only a few hours before it was published, Ambassador Grenell had told officials in a private conversation that there were no plans to withdraw troops. Quite the opposite: In the coming years there would actually be more U.S. soldiers stationed in Germany than before, he told them.
There's no way of knowing whether the ambassador, a close Trump confidante, was lying or if the article was inaccurate. What is certain, however, is that these kinds of episodes heighten concerns in Berlin that the summit will end in disaster.
The NATO allies now realized that they are dealing with an "unpredictable and obviously mentally impaired American president," says the president of Germany's Federal Academy for Security Policy, Karl-Heinz Kamp. This realization hangs above the summit like a "Damocles sword." It's a summit that "completely independent of factual issues, can only end in chaos."
By Matthias Gebauer, Konstantin von Hammerstein, Peter Müller, Christoph Scheuermann, Christoph Schult and Klaus Wiegrefe
Our research team has been watching the foreign currency markets with great interest.
Recently, the strength of the US Dollar has put extended pressures on many foreign currencies.
The recent crash of the Chinese Yuan has alerted many traders to the concerns that China could be edging over the precipice in terms of debt and credit market collapse.
As traders/investors, we need to understand how these currencies move, and future moves may drive the global equity markets to new highs or lows. Let’s take a brief look at how some of our proprietary indicators are set up on these Weekly charts.
Weekly British Pound chart
This Weekly British Pound chart showing our proprietary Fibonacci Price Modeling system presents a very clear picture that the current trend is Bearish and that price is contracting.
The Weekly Fibonacci price modeling system functions as an adaptive price modeling system – allowing the price rotations (peaks and valleys – highlighted by the yellow, cyan, magenta and white markers on the chart) to develop into a concise and efficient current model of price expectations and projections. The multiple price projection levels (the six projected lines to the right of the current price bar) show us where price may attempt to target should a breakout move happen.
Notice that the current British Pound price has reached and stalled near the 1.3100 level – which is exactly where two of our Fibonacci price modeling system has predicted with the Red and Grey projection levels? Also, notice how the Blue and Cyan projected levels are aligning near 1.3775?
This would be a proper expected price level should price find some support near the 1.3000 level and attempt a short recovery.
As get further into these charts, please understand the key elements of these charts and what they are attempting to illustrate to all of us. With each pivot high or low, this price modeling system identifies a “trigger price level” that is used to confirm a trend reversal (if it happens) as well as to identify key future support/resistance. These are drawn as Green and Red horizontal lines. You’ll notice a Green trigger price level near the current price bar – this is the “upside price trigger level” that would have to be breached if we were to see any further upside price advance. As long as price stays below this level, we should continue to expect a downside price move with a strong potential for new lows.
Summarizing this charts analysis, the current trend is Bearish. The current bullish trigger level is near 1.3600. Price is trending lower from a previous Bearish price trigger level near 1.4240. Price has reached the two (Red & Grey) projected price levels which means we should expect some price consolidation near these levels before establishing a new price trend (extending lower or rotating higher). Recent, new price bar lows show a very strong potential for further downside price activity. At this point, we see that support from a previous bottom, near 1.3060, will likely cause the price to stall near this level. We believe the price will continue to fall below the 1.3000 eventually as the strength of the US Dollar continues to push higher and the Brexit issues continue. The British Pound could fall well below 1.2500 before finding real support. Wait for this consolidation period to end and watch for lower prices to continue.
Weekly Canadian Dollar chart
This Weekly Canadian Dollar chart below shows a very interesting setup with our proprietary price modeling system. Notice the wide range between the trigger price levels (Green and Red) near the right edge of this chart? This extended range of the trigger price levels happens when the adaptive price modeling system finds price trend rotation. Previously, on this chart, we can see the trigger price levels were closer to price and within rotational ranges – the most recent breached trigger level being a Red (Bearish) trigger – indicating the start of a new bearish trend near February 5, 2018.
At this point, should price fall below 0.7450, we should expect price to continue to drop towards 0.7250. Upside resistance should be near the Cyan projected price level – near 0.7850. Unless the Canadian Dollar finds support near 0.7500 and rotates higher to breach 0.81875 – this is nothing but extended price rotation. Typically, as price sets up an extended Top or Bottom, the trigger price levels will eventually tighten to establish a breakout trend setup. Right now, the extended ranges of these trigger levels is showing us that volatility and price rotation should be expected and the downward sloping Moving Average level will likely operate as a key resistance zone. The YELLOW markers at the bottom of the chart show us that price range is expanding and volatility is increasing. We could see some bigger swings in the Canadian Dollar over the next few weeks and months – but the trend is still bearish.
Weekly Euro chart
This Weekly Euro chart shows a more traditional price rotation setup with our Fibonacci price modeling system. Notice how the trigger price levels are very narrow and close to the current price.
You’ll also notice the Cyan price trend indicator, near the bottom of the chart, that is indicating that price range is contracting. The two price trigger levels (Red and Green) provide very clear breakout trigger levels (bullish near 1.1913 & bearish near 1.1687). The most recent trigger level to be breached was the Bearish level near 1.2200. A recent low price rotation has established a new low price pivot that is projecting much higher price projection points.
Additionally, a more recent high price rotation has established new lower price projection points.
This sideways price rotation will be broken and a new trend will be established in time. At this point, we know the 1.1913 level is the bullish trend trigger point and the 1.1687 level is the bearish trend trigger point. Price trend is still bearish and any lower price breakdown below 1.1576 would be a strong indication that price is breaking below current support and should attempt to move to near 1.1000. To summarize, the Euro appears to be under extended pressure and any price breakdown could be a great short for traders.
Russian Ruble Weekly chart
Lastly, this Russian Ruble Weekly chart shows, again, price rotation and volatility. Notice how the bullish trigger price levels have been expanding throughout this sideways price rotation for the past year or longer?
As we stated early, the adapting modeling component of our proprietary Fibonacci price modeling system identified this rotation as “extended price congestion” and attempts to identify broader market breakout levels as a means to confirm a true change in price trend. The most recent bearish trigger price level was breached on April 9, 2018. Price is trending lower/bearish and the price trend indicator near the bottom is showing yellow – price volatility is expanding. We should expect further downside price moves with expanded volatility. Any price move below 0.01520 will indicate a very strong downside price move with the potential for price to reach 0.01250.
Concluding Thoughts:
Overall, we need to remember the recent political, economic and geopolitical conundrums are reflecting in expectations within global economies and currencies to be put under greater concerns. What was once a given, that the world would continue to operate without much disruption in the global balance of thing, is now open for debate. We are watching global concerns and liabilities as a result of China’s recent downturn and currency devaluation reflect in additional concerns throughout the global currency markets. We have to be aware that these issues typically don’t end quickly or without some form of government intervention. This means we may have quite a bit of time to play these moves and find good trades.
Right now, the Russian Ruble, British Pound and the Canadian Dollar appear to be poised for a breakdown in prices in the immediate future – breaking through support and possibly dropping to recent historical lows. The Euro is setting up for a breakout/breakdown move with a very narrow trigger price level range. The Euro may follow rally, briefly, if the US Dollar retraces a bit from current levels. Remember, these are weekly chart and help to understand the broader price trend. A breakdown in the Russian Ruble, British Pound and Canadian Dollar would likely coincide with a rally in the US Dollar and possibly the Euro. Therefore, watch for weakness in these markets and strength in the US Dollar as these moves happen.
Recently, the strength of the US Dollar has put extended pressures on many foreign currencies.
The recent crash of the Chinese Yuan has alerted many traders to the concerns that China could be edging over the precipice in terms of debt and credit market collapse.
As traders/investors, we need to understand how these currencies move, and future moves may drive the global equity markets to new highs or lows. Let’s take a brief look at how some of our proprietary indicators are set up on these Weekly charts.
Weekly British Pound chart
This Weekly British Pound chart showing our proprietary Fibonacci Price Modeling system presents a very clear picture that the current trend is Bearish and that price is contracting.
The Weekly Fibonacci price modeling system functions as an adaptive price modeling system – allowing the price rotations (peaks and valleys – highlighted by the yellow, cyan, magenta and white markers on the chart) to develop into a concise and efficient current model of price expectations and projections. The multiple price projection levels (the six projected lines to the right of the current price bar) show us where price may attempt to target should a breakout move happen.
Notice that the current British Pound price has reached and stalled near the 1.3100 level – which is exactly where two of our Fibonacci price modeling system has predicted with the Red and Grey projection levels? Also, notice how the Blue and Cyan projected levels are aligning near 1.3775?
This would be a proper expected price level should price find some support near the 1.3000 level and attempt a short recovery.
As get further into these charts, please understand the key elements of these charts and what they are attempting to illustrate to all of us. With each pivot high or low, this price modeling system identifies a “trigger price level” that is used to confirm a trend reversal (if it happens) as well as to identify key future support/resistance. These are drawn as Green and Red horizontal lines. You’ll notice a Green trigger price level near the current price bar – this is the “upside price trigger level” that would have to be breached if we were to see any further upside price advance. As long as price stays below this level, we should continue to expect a downside price move with a strong potential for new lows.
Summarizing this charts analysis, the current trend is Bearish. The current bullish trigger level is near 1.3600. Price is trending lower from a previous Bearish price trigger level near 1.4240. Price has reached the two (Red & Grey) projected price levels which means we should expect some price consolidation near these levels before establishing a new price trend (extending lower or rotating higher). Recent, new price bar lows show a very strong potential for further downside price activity. At this point, we see that support from a previous bottom, near 1.3060, will likely cause the price to stall near this level. We believe the price will continue to fall below the 1.3000 eventually as the strength of the US Dollar continues to push higher and the Brexit issues continue. The British Pound could fall well below 1.2500 before finding real support. Wait for this consolidation period to end and watch for lower prices to continue.
Weekly Canadian Dollar chart
This Weekly Canadian Dollar chart below shows a very interesting setup with our proprietary price modeling system. Notice the wide range between the trigger price levels (Green and Red) near the right edge of this chart? This extended range of the trigger price levels happens when the adaptive price modeling system finds price trend rotation. Previously, on this chart, we can see the trigger price levels were closer to price and within rotational ranges – the most recent breached trigger level being a Red (Bearish) trigger – indicating the start of a new bearish trend near February 5, 2018.
At this point, should price fall below 0.7450, we should expect price to continue to drop towards 0.7250. Upside resistance should be near the Cyan projected price level – near 0.7850. Unless the Canadian Dollar finds support near 0.7500 and rotates higher to breach 0.81875 – this is nothing but extended price rotation. Typically, as price sets up an extended Top or Bottom, the trigger price levels will eventually tighten to establish a breakout trend setup. Right now, the extended ranges of these trigger levels is showing us that volatility and price rotation should be expected and the downward sloping Moving Average level will likely operate as a key resistance zone. The YELLOW markers at the bottom of the chart show us that price range is expanding and volatility is increasing. We could see some bigger swings in the Canadian Dollar over the next few weeks and months – but the trend is still bearish.
Weekly Euro chart
This Weekly Euro chart shows a more traditional price rotation setup with our Fibonacci price modeling system. Notice how the trigger price levels are very narrow and close to the current price.
You’ll also notice the Cyan price trend indicator, near the bottom of the chart, that is indicating that price range is contracting. The two price trigger levels (Red and Green) provide very clear breakout trigger levels (bullish near 1.1913 & bearish near 1.1687). The most recent trigger level to be breached was the Bearish level near 1.2200. A recent low price rotation has established a new low price pivot that is projecting much higher price projection points.
Additionally, a more recent high price rotation has established new lower price projection points.
This sideways price rotation will be broken and a new trend will be established in time. At this point, we know the 1.1913 level is the bullish trend trigger point and the 1.1687 level is the bearish trend trigger point. Price trend is still bearish and any lower price breakdown below 1.1576 would be a strong indication that price is breaking below current support and should attempt to move to near 1.1000. To summarize, the Euro appears to be under extended pressure and any price breakdown could be a great short for traders.
Russian Ruble Weekly chart
Lastly, this Russian Ruble Weekly chart shows, again, price rotation and volatility. Notice how the bullish trigger price levels have been expanding throughout this sideways price rotation for the past year or longer?
As we stated early, the adapting modeling component of our proprietary Fibonacci price modeling system identified this rotation as “extended price congestion” and attempts to identify broader market breakout levels as a means to confirm a true change in price trend. The most recent bearish trigger price level was breached on April 9, 2018. Price is trending lower/bearish and the price trend indicator near the bottom is showing yellow – price volatility is expanding. We should expect further downside price moves with expanded volatility. Any price move below 0.01520 will indicate a very strong downside price move with the potential for price to reach 0.01250.
Concluding Thoughts:
Overall, we need to remember the recent political, economic and geopolitical conundrums are reflecting in expectations within global economies and currencies to be put under greater concerns. What was once a given, that the world would continue to operate without much disruption in the global balance of thing, is now open for debate. We are watching global concerns and liabilities as a result of China’s recent downturn and currency devaluation reflect in additional concerns throughout the global currency markets. We have to be aware that these issues typically don’t end quickly or without some form of government intervention. This means we may have quite a bit of time to play these moves and find good trades.
Right now, the Russian Ruble, British Pound and the Canadian Dollar appear to be poised for a breakdown in prices in the immediate future – breaking through support and possibly dropping to recent historical lows. The Euro is setting up for a breakout/breakdown move with a very narrow trigger price level range. The Euro may follow rally, briefly, if the US Dollar retraces a bit from current levels. Remember, these are weekly chart and help to understand the broader price trend. A breakdown in the Russian Ruble, British Pound and Canadian Dollar would likely coincide with a rally in the US Dollar and possibly the Euro. Therefore, watch for weakness in these markets and strength in the US Dollar as these moves happen.
