Posted on 02/02/2005 5:27:26 AM PST by nicollo
Euro the Indomitable
Despite registering the worst unemployment rate in Germany since World War II, despite suffering sharply lower German Retail Sales than expected, despite breaking the psychologically important barrier of 5 Million Germans without a job, the euro, like the Terminator, continued its relentless rise against the greenback, shrugging off the latest gloomy economic news. During most of the early European session, the euro held near the highs set in Tokyo as most FX dealers ignored the poor German data. Granted, the news was well known ahead of time and market was psychologically prepared for the numbers. Yet the dollar bulls must be truly befuddled at euro's strength especially on a day when the Fed is expected to raise rates another 25 basis points, providing the dollar with a 50 basis point positive carry spread against the euro - a spread that may widen if the ECB decides to lower rates this year in order to stimulate domestic demand.
The market will of course focus on the Fed statement parsing every comma in search of clues to future actions. At present, the consensus view is that the measured language will remain which may explain the market's lackluster interest in dollar longs. However, if this Fridays' Non-Farm payrolls beat expectations of 200K new jobs, they will stand in stark contrast to the bleak data out of Europe. At that point euro bulls will have little immediate fundamental support for their position and the unit may finally weaken.
Wednesday February 2, 6:26 am ET
By Boris Schlossberg strategist@dailyfx.com
Of course the caveat at the end, that maybe, just maybe traders will take note of good news out of U.S. and look more longingly upon the dollar...
So silly. The exchanges have ignored good news out of America over the last year. Actually, they've held nose, covered eyes and ears at the good news, and scolded the dollar in what I can only see as out of institutional brain freeze or, more the likely, a deliberate, delusional strategery of the falling sky.
What's fascinating about this article is that we've got the reverse going on now: they're long on the euro despite admitted good news out of the U.S. and despite bad news in Europe. This logic, too, will pass.
So long as the Chinese keep up their Yuan CYA dance, and they will, the euro stands as but a limp alternative. Reserve currency? Foggettaboutit.
the dollar is down because there is an economic war being waged between the EU and the USA... care to guess who is losing??
George Soros?
Thanks for the link.
The big question is how much does the China business div. of China inc., run by the Communists, need trade with the US? If they dump their dollars and run our economy down how much do they suffer through lack of orders for their factories? Or, are they at a point worldwide where they don't need us anymore? Questions to which I have no answers.
I agree, the weak economies of Europe especially the German basket case, cannot continue to support the Euro. I beleive that at least part of the Euro's supossed strength was from European traders dumping their dollars for Euros simply as a "we don't like the US" ploy. My bet is that the Euro is in for tough times in the near future.
Half of trading is fundamentals the other half is physcological.....Part of the pressure on the dollar is due to the political division between the twp parties, the EU and the US. They so desperately want to crush us and claim a victory.
But with the underlying economic data such as unemployment above 12%....their bubble is about to pop!
I've never gone seriously long on dollar prospects vs. the euro. My position has been, always, that the euro never had any strength, thereby its "strength" was a mistaken name for dollar weakness.
There are too many dollars out there, and there is too much outflow, but not enough to worry me about further dollar weakness -- and at the same time too much to drive the dollar up much from where is now. Keep your eye on gold.
That said, in euro-dollar trades, the game is up. It's no longer just dollar weakness. It's now about euro weakness.
Paul Johnson has an excellent peice in the Jan. 31 Forbes, "Germany's Dismal Future."
Johnson looks at fundamentals, and he understands that politics matters. As Nicollo has always preached, all economics are politics.
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