The Euro
There has been lots of talk recently about the demise of the Euro. I for one have been highly negative on the currency. Last week ended with Spain’s credit rating being down graded from AAA to AA+ by Fitch. Also a UK economist was suggesting that Greece leave the Euro. In my mind there is no way that this happens. There is way to much political and financial capital put into this. At all costs it needs to be salvaged. Is there a plan B? Was there ever a Plan B? I do not think so. Imagine if Greece did decide to leave the Euro. Imagine the effect on their debt market. Would you buy that debt? With no backing from the ECB I think it would be a hard sell. Also that would be a first step only. The market would expect others to follow suit and the Euro would get crushed. I think the ECB will not let this happen and will do anything to stop it.
The ECB should be Printing Money at least according to an article in the New York times. I tend to agree that although inflation is a huge risk when doing that ( can you hear me Ben Bernanke) sometimes it needs to be done. I think it has saved the U.S. economy (at least initially) but exiting this policy is the tricky part. I hope that when the time comes the Fed gets it right.
The Euro ended the week relatively bid this in spite of large sell orders late in the day on Friday. The market absorbed the sales and went higher. There are also rumors of Sovereign manes on the bid in the low 1.2200. I think we could get a little rally here and would prefer to attack the market from the long perspective. This should translate into some slight EM strength. I think this is a retrace of the overall down move, but we have come a long way very quickly. A lot of positions have been squared and quite a few U.S. traders are on holidays. I am staying away from aggressive positions as there is way to much uncertainty in the markets but I think a reversal trade might be in order.
Good Luck and Good Forex Trading
Cash is King and so is the Dollar
Aaahhh to be so wrong and yet so right. This week reminded me of something me father used to say. “I may not always be right but I am never wrong”.
Lets start with I was wrong. No two way about it. I wanted to buy Euro and use a stop of the previous days low. I bought and was stopped out on a big, quick and costly move lower. But then Thursday happened and the move I expected on Wednesday occurred. One day early. Very frustrating! So no looking back we now look to this week and to start with I see little changing to the overall negative picture. The Euro move in my mind was a corrective move of an overall move to parity (or there abouts). I have been looking for 1.2000 by the end of summer but in reality we have basically hit that already. Fundamentals drive a market and the fundamentals right now say the U.S. is far ahead of the rest of the world in recovery and as such the Dollar is once again King.
The meltdown in Emerging Market currencies is astonishing. Firms and corporates are taking risk off at all costs. No matter what you think is a “silly” level it can and will go further. On Thursday UsdKrw moved almost 5% during New York time. Well outside what is deemed reasonable. It stopped and reversed its entire move only after local banks (on the behalf of the CB?) came in and drove the market lower. On Thursday 12 month China was paid at 6.6725 and then after a particular “dirty flow” went through the market was down at 6.7310. These types of moves do not occur during rational markets. Going forward I see more of the same. Europe is a mess! Talk of a demise of the Euro, although unlikely, will certainly gain traction in the months ahead. Remember the U.S. credit crisis of 2008-09. Was it rational for the markets to take down all of those financial institutions one after the other? probably not. But it happened. Why because of FEAR. What we have now is fear also. The markets will over shoot, they always do, but I think we have a bit more to go before we begin to think that we are at those over shoot levels. Also on Stocks, people will remember the free falling markets and will begin to sell into rallies to cut exposure. Lots of people were wiped out in that big move lower, missed a good part of the recovery and now do not want to be sitting on stocks if we do move lower again. I see the upside to stocks as being limited for the next 6 months or so. Cash is King and so is the Dollar.
Good Luck and Good Forex Trading
Ok, So I was Wrong
OK, So I was wrong. Very Very Very Wrong. I took my loss and I am moving on. I can tell you we saw strong buying of Dollars against Asia and Latin America today. Thin liquidity. Everyone very nervous. With Germany eliminating short Selling of CDS will the rest of Europe follow along? Well they should. If this happens then it will cause more problems near term. Basically the market wondering what will be next! Also if you cannot short a country’s CDS, Bond or stock market what can they short? The EURO! I wish I would have listened to one of my simple rules “The Trend is your Friend” and I would never have faded the move. Oh well if I were never wrong I would not be sitting here but rather I would be on a beach somewhere sipping a drink with an umbrella in it.
Good Luck and Good Forex Trading.
A temporary bottom
A quick thought on the Euro. Looks to me that we have put in a temporary bottom. We were attacking the market from the long side today. Not directly with the Euro but rather through Emerging Markets. We were caught out a bit in the early afternoon after stocks took a hit but we held strong and I think we could have seen at least a bottom for now. Everyone (I repeat EVERYONE) is sitting short Euros and I think is stocks stabilize then we can see a rally up towards 1.2850. Use last nights low as a stop.
Good Luck and Good Forex Trading.
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