In previous market turmoil, it was London and New York that set the pattern around the globe, but in the last few months it has been the German DAX index that has led the world down.

And there is good reason for this, because the two solutions to the European problem — a break-up of the euro (probably by Germany leaving) or a eurobond with a joint and several guarantee — are both very painful for Germany and will set the country back for many years.

But as the European banking crisis deepens, so the urgency for the politicians to go one way or the other gathers steam. Yesterday, I took a bit of a risk and, in advance of the opening of European and US markets, wrote about some of the market forces we would see during the night. It is always dangerous to write about markets before they open because you can be so easily caught out, but on this occasion all was well.

And so during the night the DAX index fell below its 5,000 trigger point. Remembering that computer trading dominates world markets, my guess is that the hedge funds were shorting it down. The break below 5,000 triggered buying, which forced major covering by the shorters and propelled the market forward.

We had seen exactly the same pattern emerge earlier in Hong Kong, which fell well below 19,000 to trigger the buying process. The Dow index in New York last night fell below 11,000 and again triggered buying.

I am not an expert in these computer market games which dominate our trading, but my guess is that when you trigger a wave of buying it can continue for a period before new events overtake it — i.e. we get a market rally.

The Australian market did not benefit from this buying wave so it should benefit today, but the Australian dollar is struggling, which may moderate the move.

Indeed, the global currency markets are still moving in a way that indicates the currency computer traders expect a renewed crisis which is different to the share traders. It’s a strange world we live in.

Meanwhile, last night the option of eurobonds, jointly and severally guaranteed by all European countries, was well and truly put on the table by those who want to keep Europe together and believe the banking pain of Germany leaving the euro is just too great and would be worse than bringing everyone together.

You will remember that the founders of the euro knew that longer-term the common currency would not work but that when the crisis erupted the only solution would be to move closer to a financial, monetary and political union — a United States of Europe. We might need a few more crises to get to that point.

*This article was originally published at Business Spectator