EUR/USD hit a double top of $1.60 last year, and slowly afterwords reversed as the signs of the "credit crunch" became more and more visible. The collapse of Lehman Brothers brought the pair to $1.23 - April 2006 levels. Surprisingly, the slightest prospect that the Euro Zone might be a hedge against the deteriorating US economy pulled the euro back up to $1.47, almost within a month back in December. However, the continued slide in the S&P/Dow and the overall depression-like status of the world's economy again forced the euro back to $1.2450 - nonetheless, new lows were not made. Some would argue that divergence has presented itself between the dollar/equity markets correlation.
The US dollar is the world's reserve currency, and deleveraging forced investors to move into safer financial assets, notably US treasuries and the greenback. Worldwide fear was the prime move behind the current appreciation of the dollar - the unchallenged safe-haven status. On the other hand, as for the euro, how can it challenge, or even compete as a global reserve currency? In my opinion, the structural problems of the Euro Zone; mainly the ECB being unable to issue euro-dominated treasuries/debt, lack of a real coordinated fiscal policy between individual governments, and the unquestionable inherent economical difference between member nations (PIGS economies vs Germany for example + the prospect of somewhat unstable Eastern European countries joining the euro club in the near future) will prevent the euro from muscling-in on the dollar.
This "depression" is starting to feel more like an old fashioned recession; curtain important economical indicators have been improving; to the surprise of ordinary investors. The loss of jobs has stabilized and 10% unemployment rate looks to be the realistic peak. Real estate market is back at 2003 lows, however, until demand truly outstrips supply it will continue to be a shadow on the entire economy.
The United States continues to try to buy its way out of this recession: TARF-TALF-stimulus package-Fed buying US debt/toxic assets + interest rates at a record low. Without going into major details, the US government is simply printing more money, and this will ultimately lead to inflation - thus, the continued depreciation of the greenback. Lets not panic, US will not default on its debt nor a notion of a "global currency" could be more further the truth.
Yes, we (US) will be the first to come out of this recession (yes, I said recession), mainly due to our aggressive fiscal policy (summarized above) and the fact that we entered it first - followed by China most likely. However, new global growth (leveraging) and in-turn renewed risk appetite and the consequences of issuing more debt/inflation will in my opinion have grave consequences for the dollar.
On the other hand, the refusal of any major stimulus measures by the Europeans at the G20, and the reluctance to lower interest rates (ECB's mandate to fight inflation above all) will place the euro in a stronger position. Let's not forget about the current rate differential: USD-0.00%-.025% vs EUR-1.25%. The Euro Zone will in someways benefit as a "free rider" in regards to other nations stimulus packages, mainly US and China.
In final analysis, if the March rally in equities holds, the sky is the limit for the euro. Possible retracement to $1.28-$1.30 coordinated with S&P retracement, might be the last pull back to jump the ship.
This is my first post, so try not to be too hard on me, lol.
Good luck trading!
The US dollar is the world's reserve currency, and deleveraging forced investors to move into safer financial assets, notably US treasuries and the greenback. Worldwide fear was the prime move behind the current appreciation of the dollar - the unchallenged safe-haven status. On the other hand, as for the euro, how can it challenge, or even compete as a global reserve currency? In my opinion, the structural problems of the Euro Zone; mainly the ECB being unable to issue euro-dominated treasuries/debt, lack of a real coordinated fiscal policy between individual governments, and the unquestionable inherent economical difference between member nations (PIGS economies vs Germany for example + the prospect of somewhat unstable Eastern European countries joining the euro club in the near future) will prevent the euro from muscling-in on the dollar.
This "depression" is starting to feel more like an old fashioned recession; curtain important economical indicators have been improving; to the surprise of ordinary investors. The loss of jobs has stabilized and 10% unemployment rate looks to be the realistic peak. Real estate market is back at 2003 lows, however, until demand truly outstrips supply it will continue to be a shadow on the entire economy.
The United States continues to try to buy its way out of this recession: TARF-TALF-stimulus package-Fed buying US debt/toxic assets + interest rates at a record low. Without going into major details, the US government is simply printing more money, and this will ultimately lead to inflation - thus, the continued depreciation of the greenback. Lets not panic, US will not default on its debt nor a notion of a "global currency" could be more further the truth.
Yes, we (US) will be the first to come out of this recession (yes, I said recession), mainly due to our aggressive fiscal policy (summarized above) and the fact that we entered it first - followed by China most likely. However, new global growth (leveraging) and in-turn renewed risk appetite and the consequences of issuing more debt/inflation will in my opinion have grave consequences for the dollar.
On the other hand, the refusal of any major stimulus measures by the Europeans at the G20, and the reluctance to lower interest rates (ECB's mandate to fight inflation above all) will place the euro in a stronger position. Let's not forget about the current rate differential: USD-0.00%-.025% vs EUR-1.25%. The Euro Zone will in someways benefit as a "free rider" in regards to other nations stimulus packages, mainly US and China.
In final analysis, if the March rally in equities holds, the sky is the limit for the euro. Possible retracement to $1.28-$1.30 coordinated with S&P retracement, might be the last pull back to jump the ship.
This is my first post, so try not to be too hard on me, lol.
Good luck trading!
