I update Quote Of the Day few times a week, so from now on, I will also be doing Chart of The Day as well.
I thought I start of with a great chart from Bank Credit Analyst newsletter, which is asking the same question a lot of currency traders are also asking themselves: where is the US Dollar rally?
When a price of an asset fails to rally on favourable conditions or news (EU problems is favourable for the Dollar as a safe haven), than it could be starting to price in more unfavourable conditions just around the corner.
Very good point indeed. I am a bit puzzled by the resiliency of the Euro to be honest, rather the lack of the USD rebound.
ReplyDeleteI am planning to make a post on this, but a quick summary would be that you can see this lack of rally from another perspective:
But people have been piling into the Yen and the CHF, and when these reverse, we'll get a USD rally, which in turn could create a second leg down in risky assets.
In my opinion, if you do your research and your readings properly on the fundamentals of the currency structure and the position of both the United States and the United European Union, you come to a conclusion, quite easily might I add, that the US Dollar is a much much more flawed currency than the European Euro. But, I won't bother with that, because it will turn into such a huge debate of so many facts and fictions, that I rather let the market decide... therefore my vote has always been and will be with short the Dollars, long the commodities (instead of Euros) in the long run!
ReplyDeleteDear Pej,
ReplyDeleteEveryone is puzzled by the act of the euro, but I will tell you what is happening.
There are 2 reasons for the EUR strength which doesn't have logic.
1. China is buying EUR to support the Euro-zone, because if it don't the EUR will go down and will again be attacked by the markets. Everyone will wonder whether it will survive and it will be bad for the EU economy.
Of course China's help will not be forever, when they step off, you will see EUR going down. They are not cure for the problems, they are just helping now. Trust me, there is really a mysterious EUR buyer, and it's China (they don't want to lose exports to EUR and keep the EUR high, EU need it, so they accept the manipulation). Check the EUR chart - markets trying to take it down, and someone who suddenly buy it with daily spikes. It's a fight, markets want EUR down, but someone big doesn't (it's China).
There is second reason for the EUR strength. Banks in Europe funded in USD because it was cheaper and during QE2 there was alot of dollars (so banks Sold USD to bring EUR in Europe), so when they cover cover their loans, they must sell EUR to buy USD to give back the credits.
I believe somewhere by the end of this year or next the EUR will go down a lot. Overall I like the EUR for the next several years, because I believe some PIGS will exit the Eurozone and the EUR will become stronger later (after the initial panic that will sell the EUR).
Regards,
Ili
Nice post Ili. I must agree with you on the China part. The reason I think China is buying Euros is not just because they are trying to help Europeans out, they are also trying to get out of the Dollars and diversify. The US Dollar is a terrible currency and China knows that.
ReplyDeleteHowever, having saying that, maybe the Euro is not falling because Bernanke might surpass everyone in 30 mins time and do QE3. You know, everyone is talking about how he will not do the QE3, the consensus is very sure that nothing will happen. I would find it very funny if he actually did something and surprised everyone, whichs makes the Dollar fall further. I'm just guessing here and I really don't have any exposure to either currency.