In response to Tapering All Talk No Action, Expensive Valuations, Duration Risk reader David is wondering about the Euro.
David asks “Can anyone explain why the Euro is still rising in value against US dollar, nonstop? When this will end?”
Hi David, this was expected, at least at this end. Rather than play the Euro which I do not like for numerous reasons, I have been long the pound.
I went long the pound on October 7, after the pound’s big Brexit crash. Peter Atwater had this pertinent Tweet on sentiment about a month earlier.
I believe that “like” was mine.
I am not sure when I first mentioned being long the pound but I commented on it on December 14, 2016 in Saxo Bank CIO Bets on Weaker Dollar, Cites Blowout Equity Bubble.
Pound Weekly
Both FXStreet and Investing.Com have good chart tools.
I did not catch the low, more like 1.23 or 1.24. The trade went nowhere for six months. The Beginning of January 2017 was still an excellent time to buy the pound.
Why is the Euro Still Rising?
1. ECB’s moves are in front of it. Think expectations.
2. The Fed’s moves are largely behind it. How many hikes will the Fed get in vs promises and expectations?
3. The Trump reflation bet is over. Expectations were high but there was no healthcare bill and tax reform is questionable at best.
4. Growth in Europe has been better than expected.
When Will Dollar Rise Stop?
A snapback could happen at any time especially given structural flaws in the euro and the banking mess in the EU. Eurozone risks are high and rising and the Euro is 62% of the dollar index.
However, currency trends are very sticky. Look how high the dollar index rose.
We are all guessing, but I would rather take my chances with the pound than a bet either way on the Euro.
Mike “Mish” Shedlock
Reblogged this on World4Justice : NOW! Lobby Forum..
LikeLike
thanks Mish!
LikeLike
Death of the BAT also plays into it. Euro tightening ahead as you said with Fed in rear view. Plus no BAT. Although, Draghis term isnt up until 2019 and I do not think he will really tighten much unless he has to (like he runs out of stuff to buy). This the first wave. There will be a retracement and I agree the Euro is a dangerous currency. Was also long Pund right in front of May announcing the vote. Not in now unfortunately
LikeLike
Erik Hadik’s nailed GBP with his 8 yr cycle prediction, in advance.
LikeLike
The euro will continue to rise, at least into the German elections in Sept, where the establishment will pull out all stops for Merkel, who has never gotten 40% of the vote. A Merkel win will give the euro faithful hope of survival, but the big money, that must live in reality, knows that a Merkel win means no serious reforms, meaning the euro is toast. The high for this euro rally is the 116-117 area. If last year’s high of 116.16 is breached, then the 121 level is possible by the end of the year. If the euro close out 2017 below 121, look to start shorting the euro. The Italian election in Feb will certainly be the final nail in the euro’s coffin. The US Dollar and stocks will be the beneficiary.
LikeLike
O/T — the ponzi scheme formally known as Tesla is having even more problems without endless taxpayer subsidies… this time, the company is having “technical difficulties” issuing refunds to people who put down deposits for the vaporware Model 3 (which is having production problems). Tesla had promised to return customer’s deposits within 3 weeks, but customers are reporting the actual wait is over 3 months.
Tesla only “makes money” when Obama shoves billions in subsidies at it.
The solar panel company that used to be separate … that’s still losing money also.
LikeLike
I think the Euro is operating in a more deflationary environment…plus I assume the US may be buying Euros to weaken the USD for trade reasons? The EU is a huge mess-and economy operates in cash quite a bit of the time. I bet there is a bit of cash hoarding since the banks in a few cases are prone to bail-ins
LikeLike
The US doesn’t need to buy another currency to weaken the dollar. Just print and spend locally. The US imports so much that it will export deflation. It would not be to the US government’s advantage to strengthen the Euro when some US tech companies owe fines in Euros, and VW has to pay fines for falsifying emission tests. It would hurt everyone.
LikeLike
It should not be a surprise in our current global economy that behind the curtain central bankers could be busy manipulating currencies so they trade in a narrow range that will not rock the boat.
Many market watchers have become dubious of recent market moves and over the top efforts of both governments and central bankers to keep this so-called recovery moving forward. More on the merit of this controversial opinion and the ramifications it holds in the article below.
http://brucewilds.blogspot.com/2017/03/currencies-are-trading-in-false-paradigm.html
LikeLike
The euro is perpetually too strong for it’s outlook, which is considerable worse than US as it’s a political union. Thats OK for USA, but a lot of countries all over borrowed cheap dollars and are getting margin-called on expensive dollars. The USA lent out $$$dollars during the crash to save foreign banks as well-and got some cheaper euros in the equation. The US selling euros high could be strategy as well?
LikeLike
A wave of deflation from China or anywhere for that matter will cause untold trouble in Euro land.
What can they possibly do when already in NIRP, bloated balance sheet and bond buying close to full tilt.
Any reasonable downturn will increase NPLs.
Should Germany catch a cold through reduced exports (US actions, Brexit etc) it will only increase the stresses.
Japan, UK, US are in no fit state to pick up the relationary baton. China is running out of runway too.
Everyone is in the crappier.
LikeLike
I agree the Euro is a dangerous currency. Was also long Pund right in front of May announcing the vote. Not in now unfortunately..’
LikeLike
@Shamim… what are you doing copypasting other users comments as your own? It was Fish yesterday, today Tommyberg… or are they both ‘you’? It adds confusion.
?
LikeLike
Its the same troll that was posting as wrldtrst and realist and now “j c” and shamim (throw in a “h t” every once in a while.
Maybe its one person. Maybe its a click farm in India hired by the DNC to pester and confuse. It stinks of George Soros desperation whomever he hired.
And it degrades the blog that they continue to comment — if one is known by the company they keep, who wants to keep company with Soros’ web trolls?
LikeLike
I’m not too fast to judge…would end up paranoid plus people are free to hold other views… but most people have a limit where they reckon others aren’t sincere or are purposefully disruptive . Each to their own in that respect, but I don’t like seeing sincere contributions to conversation ruined either…doesn’t take much to make the forum seem unfriendly, especially to people who are just starting to comment.
LikeLike
The more solid politicians can be found in Continental Europe – US and UK are currently run by crazies and that shows in the currencies. Euro is now at 2 year high vs $rump, beautiful chart break-out, next hurdle is rather high around 1.40 — I am watching 1.23 which would be a 50% retracement from that. If $rump continues his crazyness the sky is the limit LOL
LikeLike
Good luck!
Careful what you wish for as not even the wisest can see all consequences.
LikeLike
Trump is the world’s biggest currency manipulator! He is deliberately acting crazy to lower the value of the US dollar in order to improve the US trade competitiveness.
LikeLike
Eurozone
Trade – slight surplus
Gov’t Debt – 85% of GDP and shrinking
Gov’t Budgets – deficit 1% GDP
Pensions – fully funded
Medical Industry – 8% of GDP stable
Foreign Relations – pragmatic & focused on trade
USA
Trade – structural deficit 3% of GDP
Gov’t Debt -150% of GDP and rising
Gov’t Budgets – deficit 5% GDP
Pensions – 30% underfunded
Medical Industry – 18% of GDP rising
Foreign Relations – Bellicose; at war for last 15 years.
LikeLike
So things can only get better in US and worse in EU?
What are you actually saying?
When US goes down it will be a biggee for everyone.
They do normally allow recovery to occur however so never right off the US.
LikeLike
The interesting thing is that US consumer credit growth is slowing and the UK is close to saturation at £200Bn.
Much of that was for imported goods – cars.
Will the draught be felt in Germany when the US, UK consumer is maxed out?
What impact on the those that have been benefiting from massive export as % of GDP?
Now – add the rise of the Turkish car industry – on the march with Toyota and many others that will create havoc in the EU. Some serious plans.
LikeLike
So, the mighty Euro began life at around < € 250 to the ounce of Au. It's now at €1080 per ounce. Some kind of "Strong" currency there.
When it's trading at $1.40 but it takes €2000 of 'em to buy an ounce of gold,,,will all the Euro bulls be cheering?
Strange economics at play these days.
LikeLike
The Euro is rising because Germany has a $50 Billion/year trade surplus with USA. The Euro will rise until accounts balance. Germany has the option to purchase US LNG in lieu of Gazprom gas. Another option for Germany would be to deploy three armored divisions in Ukraine It’s a German thing. Nobody else cares.
LikeLike
The reason why it’s rising is that putted simple:
– On USD side: Trump never wanted a strong dollar, and he advocated this during elections.
To be able to compete on the international market, products must be good and cheap.
A strong USD hurts american exports, because american products become more expensive to buy by those who live outside US.
If you don’t sell/export products of your industry, you don’t import capital and you will not be able to produce more/ create new jobs.
Because of this, in order to compete with EU and China, a weak dollar outside US is wanted. And this will continue as long as Trump will stay in the office.
– On the EUR side: the same aim, is to increase EU exports and be competitive. The low price for eurozone products was keept low, with the help of Quantitative Easing. But this policy, which was applied for months, cannot be carried forever indefinetelly.
The positive results regarding to unemployment, inflation and growth which where trigered by QE measures. indicated that the Eurozone economy improves. This general optimism, contributes to EUR appreciation.
Last but not least, the secret Ace of cards EUR has in the pocket, is the interest rate: while FED raised interest rate several times, ECB did not even started (at the moment fund rate is 0), and is expected to be raised for the first time in August – September.
The fund rate’s will further fuel EUR’s ascend, up to the clouds, unless Draghi will invent something… maybe continuing QE… or throwing EUR over the window from his appartment…
The point is, that an excessive strength of a currency is never wanted by any ecconomy, because of it’s direct influence on the internal market.
LikeLike
That tweet is from 2014 Mish.
LikeLike
i agree with your logic regarding Euro’s rise against the dollar
but, from a technical viewpoint, it has broken a trading range
going (from 1.17 to 1.04) back past 2.5 years
and that would point towards further rises ahead.
besides US needs a weaker currency all round.
(Yuan also been on uptrend vs Dollar past 6 months
from 6.96 to 6.72)
LikeLike