EURUSD 1.1851 |
USDJPY 111.52 |
GBPUSD 1.3772 |
AUDUSD 0.7485 |
USDCAD 1.2406 |
GBPJPY 153.59 |
EURJPY 132.15 |
AUDJPY 83.48 |
CADJPY 89.86 |
Silver 26.23 |
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will the ECB signal joining the expansionary policy started by the Japanese or the FED?
no sir, it will not.
it will still say that it will cnotinue on its path of normalizing / towards reducing liquidity in the banking system
this is an exact replay from spring / summer 2008
ECB had actually raised rates from 4 to 4.25 and then in panic followed the amercicans couple of months later.
Leave it to the Europeons to allow the crisis to escalate until panic and then try to apply band aid.
Euro above 1.50 will kill whatver growth that Eurozone might be planning to eke out in 2011.
ECB will do nothing for now, FED will print money, Dollar will go 1.5+ to the Euro. Oil will escalate above 100 and then panic will arrive in ECB.
FED is getting really trigger happy and ECB becoming too shy
The gyrations in the currency markets are all man made - or CB made
Would be best if they just leave the system alone and let the macro trends let the system clean itself out on its own time
this is not sustainable and the ECB has to jump in at some point
...probably before this 2 nov date, they need to say what they will do
currencies move in macro directions based on fundamentals
- however, the central banks keep intervening resulting in distortions which last for months.
Euro would have depreciated
- had China not intervened, and then Japan intervened and now the FED is jumping gun
current set of interventions are uncoordinated, so you have seen the Euro peaking, then Swiss and Dollar and then Yen in multi year highs. The net result is devaluation and loss of value for the currencies.
I will see Euro around 1.50
but the main question is what to buy - Gold / Silver / Oil / Sugar / Wheat / Aussie / Swisse or canadian dollar or to put it in Chinease stocks
thats the main question - when you go out the major currencies, what do u do
my two cents on Eonia - Euribor
the rise in Eonia can be traced from the June 7 date - when the reversal in the Euro happened
As the Euro is increasing, the demand for the Euro is increasing (bubble formation), resulting in rising in Eonia. So, it is not the lack of supply, it is the rising demand for the Euro from Hedge funds and Central Banks that is causing this rise.
When (whenever) Euro falls across months, Eonia will decrease.
So, in a way Ashraf is correct and we should not consider this rise as an indicator of tighetened money lending.
In my view, Euro rise since June 7 started due to the Chinease buying into spanish bonds that ultimately suggested no imminent spanish default resulting in overall improving the sentiment towards the Euro. The 2nd major event has been Bernanke's reversal on QE2 that has taken out the floor from the Dollar. The 3rd event is the Japanease intervention that is resulting in asset allocation out of the Dollar and into the Euro.
This money printing is not sustainable and a peak in Euro should occur with a sharp crisis in Eurozone sometime early next year. For the next 2-3 months, I would not worry too much about the Eurozone. Greece and Spain are covered for now.
you cannot imagine what you cannot see or what you do not know- a black swan coming?
my current milestones on a fundamental basis are the October jobs report and the Nov 2-3 FED meeting.
If the jobs report is too good, then Dollar could rally, and QE2 may be considered a bluff. If the jobs report is bad or ok, dollar should fall with imminent QE2.
For now, all indications are that the FED would annouce QE in the range of 500 billion in the november meeting.
If these two milestones are met, there is no cover for the dollar and it would go above 1.5 before december jobs report.
The month of december should be a reversal month for the Dollar accompanied by Euro losses triggered by a weakening Euro economy.
I intend to sell the Euro before the december jobs report.
For now, I would only be short Dollar.
There can be any catastrophic event from now to december that could trigger a strong Yen and Dollar rally. Minus such an event, the Dollar is poised for a sharp dip - tighten your seat belts.
Overall, Dollar Index below 70 for a year would be great for the Dollar. It shorely will tip the Eurozone into a sharp recession but who cares.
I would also point to CFTC futures buildup of Euro long positions http://danskeresearch.danskebank.com/link/IMM041010/$file/IMM_041010.pdf http://www.scotiafx.com/Chart_Feed/IMM.pdf
"I think rather the FED's objective is to find someone who is both lazy and stupid enoungh to pay the bill."
I could think of the Arabs - Saudis and Emirates buying billions of toys like fighter jets / missile shields while the US plays up the poor Iranians via Ahmadinijat.
The ECB under Trichet claimed to have a lot of bite - but Sarko and Merkel have shown they r toothless and that real monetary and fiscal power still lies with the Franco German governments.
To me fair value for the Euro is around 1.35 - 40. Above 1.50, the Euro is definately overpriced. However, market mechanisms alone do not determine price - Central Bank interventions are key.
The FED is creating panic since Bernake can see that the Tea party / Republicans / Raun Paul etc are all clamouring for austerity which will kill any recovery that the stimulus might have created.
So, the FED is shooting before the people speak in November
Said,
I went to an engineering univ in Pakistan and then for finance / business degree in Rutgers, US. I work out of Munich.
Paris / French universites are great - only that these french institutions were providing the main gurus for "financial engineering" and option pricing for risk that ultimately took (almost) the whole financial system.
There is no more a Keynesian solution for the US economy - Obama has lost the mandate for fiscal easing. The only window open is Friedman style monetary easing and Bernake will go for it. If he does not, rest assured that US is done for the next decade.
one could argue that the FED is trying to bring the unemployment down by decreasing borowing costs for businesses so that they could hire more and for housing to become cheaper so construction could resume.
however, the macro issue - loss of low and medium skilled jobs in manufacturing that are permanently lost to overseas cannot be fixed by the FED. Its a generation of high school dropout Amercians that were making 20 dollar per hour working in some factory in Ohio who now may find some work at Walmart at 5.75 per hour or be homeless. How do you fix a system with millions of people with not much of a skill and thousands of people coming over from Mexico and willing to do the same job with half the rate.
Opening the US economy for golbal business has been great for the US businesses. Even if jobs move out, the multinationals are happy - you invest in China or where ever the cost is low. thats what Buffet does. Unlike Europe, where there is a social model and job firings in a company take into account social conditions of its employees and the politicians are constantly in an act of saving local jobs (think Germany) - in the US the unions are weak and the business have the main influence in Washington. People are fooled to feel rich in America via the stock market and appreciating house prices and abundance of credit etc. In reality, the common working class is geting poor every year.
But this is the American model.
In my view, the only way out of this stagnation for America is to cheapen the Dollar. Consider what happened to the Dollar during the Nixon era. The sixties were roaring and then came a recession couple with Vietnam war expanses. Nixon went ahead and took out the Dollar convertibility to Gold - (was it 32 $ per ounce?) and what follwed was a weak dollar, high oil prices and high inflation for the next decade. A similar scenario is ensuing now.
A weak dollar is great for the US economy and the US worker.
The main cause for concern would be Oil prices.
The key support for the Dollar Index is around 74 and then 71 coresponding to 1.51 and 1.60 for the Euro Dollar. I think both can be breached in the next few months. For now, I think the Euro would hold 1.35 and would top 1.4 before end of this month.
the main question is how large QE2 will be
will it be bounded like 500 billion for six months or will it be open ended like 50 billion every month until the FED is happy
strictly speaking around the FED mandate, inflation is low and price stability is maintained - there is no reason the FED should do QE2
However, since when did the FED stick with its policiy mandate?
FED is a private grouping of bankers mandated by the Congress to keep the US economy chugging at what ever cost. What Bernanke and Greenspan did in the 2002-2006 was simply inflating the economy and this is what Bernake is going to do now. Overtime, if the US can reduce its dependence on foreign oil, then a lower dollar is great for the US industrial military complex.
FED is indicating panic to the markets - thats what QE2 is. Panic will decrease the value of the dollar and allow US trade balance to improve. Now, if China does not listen, the US government must come up with trade sanctions against select Chinese companies - starting with Banks and Energy / Oil companies. US does have an option to decease its dependence on China and increase it on India - this is where the US money is going - check India's BSE. The alliance betwen India and US is less of a military alliance and developing more into a strategic business alliance via outsourcing.
As the Dollar index dips sharply and below 70, there will be a bigger pressure on China to allow the Yuan to apprecite.
The best card Europe (Germany) could play would be a forced default of Greece bringing the Euro down to a lower level.
The best bets long term are the Swisse and the Aussie - the first being net positive capital flow and the second being net positive commodity flow.
I think Euro could top 1.50 by mid November - and a subsequent contraction in Eurozone could develop by srping time.
The US can dig itself out by devaluing the Dollar Index below 70 - provided the Republicans Boehner and Co do not start attacking the FED.
" Readers of my book will find in detail how the Bush tariffs on Chinese and Brazilian steel manufacturers coincided with the top of the US dollar in 2002."
Agree with Catnip and co that there are many issues in Eurozone including austerity and greek default at some point of time.
But do consider the thunderstorm that the Dollar is facing
1- US taxes are going up on Jan 1, 2011 on the high earners who contribute 25% of comsumption.
2- US fiscal stimulus is dwindling out by first quarter 2011
3- US House is swinging back to republicans in the november election resulting in a deadlock between the US administration and the Congress - so no more fiscal easing, and only austerity can come out in the next couple of years in the US
4- US FED is terrified of Japan style deflation and is not ready to allow the economy to correct itself to its right size - all it wants to do is inflate inflate inflate. This is exactly what Greenspan and Bernanke did in 2002 - 2006. Having cut interest rates to zero, the next step is to directly buy Treasuries and put money in the hands of the banks.
The key questions are
- How much QE2 will be done
- When will it start and finish
One option for QE2 is big bang impact - anounce 500 billion to 1 trillion of asset purchases for the next six months for example. The other option is to annouce a program for monthly purchase of 50-100 billion and adjust buying until required.
If Fed starts QE2 now, it may favor the democrats before the november election. If the FED starts after november, it may find it too difficult to run this since the public seems to be running for austerity and small goverment spending mantra of the republicans. At the same time, Bernanke and co may want to hear what the public is voting for - So, somewhere around november or a bit earlier, tis QE2 will be clear.
The Dollar is falling since the QE2 annoucement is understood by the markets as a sign of panic by the FED. If QE2 is small and measured, the Dollar may stabilize.
I would not buy the Dollar until a clear annoucement on QE2 is made.
In the Eurozone, sovereign bond auctions, specially Spain, will go smoothly. The big event is Greek default but that may take a few years. Others, including Pakistan, Venzuela, Ukraine, Argentina etc are limping along so there is no reason why Greeks can also continue for a couple more years.
Dubai default is a special case. Dubai could not and would not default under the assumption that its big brother Abu Dhabi was always there with its trillions. However, the default happened just because the Abu Dhabi sheikh wanted to kick the butt of the Dubai sheikh.
Greek default will happen when the Germans think that the Euro is too expansive and it makes sense to bring it down via the Greek default - the Germans have it boh ways.
By the way, the long term solution to the US GDP is a dollar devaluation - Dollar index around 60 -70 is all it takes to get the US out of this mess. But this will only happen in a panic or in a long term QE3,4,5,6,7 etc in a Japan style printing press