Euro, Panic or Premonition?
Research for Online Investors

by Vincenzo Desroches

6/4/10

A Weaker Euro Creates Quite a Forex Trading Brew

With one of the oldest democracies in the world teetering on a cliff of massive debt, and Asia recovering from the global recession faster than anyone expected, the big global economic question of the day is: Do I short the Euro and go long on the Dollar, or short the Euro and go long on Asian currency?

Some currency brokers say yes to both scenarios, while others say the Euro’s decline is just a premonition for the course of the Dollar. No matter what you think, numbers tell the story. The Euro is down over 8% since the beginning of 2010, and as March 2010 goes out like a lion the Euro is trading at $1.34

A weaker Euro is creating quite a forex trading brew. The decline of the Euro is a relief to some European companies who want to increase their worldwide presence, especially when the Dollar and other stable currencies are used to buy European goods.

Daimler AG’s chief executive officer, Dieter Zetsche, recently said: “A weaker Euro in the short term is an opportunity.” He also added: “While we would be benefiting in the short term from some pressure on the Euro, we are not wishing for that.” The chief economist for the Finnish Forest Industries said: “The weaker the Euro, the better it is for Finnish industry and exports. Even though it has come down from last year it’s still fairly strong, especially if you look back to when it was on par with the US dollar.”

That parity was in 2003, which has little bearing on global currency trading now. That information is certainly good for technical charts and graphs, which help identify cycles, but the current situation is fueled by out of control spending by several European nations, as well as other economic and political issues, plus there are whispers that currency hedge funds might have banded together to help the Euro continue its downward trend.

Can the European Union Pull Itself Together and Reverse the Trend?

The interesting point to remember in this Euro melodrama is German and France are still economically strong, and the International Monetary Fund is in place to help Greece meet their financial obligations this year, and help reverse this downward trend in the value of the Euro. The Eurozone could also help Portugal and Spain pull themselves out of their self-created financial hole, and that’s why Former Regan Administration Council of Economic Adviser Chairman Martin Feldstein, who is now with Harvard University, believes that the decline of the Euro is a knee-jerk reaction or what he calls” irrational or panic selling.”

Some investors are saying: “I’m going to sit on the sidelines and not leave money in Euros.”  Feldstein also said we should stop worrying about the Euro, and start worrying about the Dollar. That may be accurate, because German and France and others Eurozone countries, as well as the International Monetary Fund have agreed on a bailout plan for Greece, which they hope will stop the hemorrhaging of the Euro. Germany and France had said earlier that a bailout of Greece would only come as a last resort.

Some Currency Traders Say the Euro Value Will Continue to Drop through August

John Taylor the founder and Chairman of the $9 billion currency hedge fund FX Concepts LLC told Bloomberg News that the Euro will continue to slide, and may have a value of $1.20 by August 2010. Taylor believes that the Eurozone and IMF bailout of Greece or any other country will not help stop the decline in the Euro. He bases that belief on the Latvia bailout, which has not been very successful; in fact Latvia is still struggling to keep its financial head about water.

When you combine all the issues facing the European Union, as well as the US, Taylor believes the best short term strategy is go short on the Euro for the next six months, and go long on the Dollar, as well as go short on the Euro and long on Asian currency over the next twelve to eighteen months, because the Asian market is pulling itself out of the global recession faster than any other part of the world.

The big question is whether panic selling or premonitions make a difference in trading strategies when all the other factors that impact the value of the Euro, as well as the Dollar are considered. Some currency traders say absolutely. The currency is a 24/7 liquid market and there are trading opportunities every hour. One of the exciting aspects of forex trading is the investor’s ability to react in real time without the unnecessary trading hurdles that can impact other markets. Every bit of information should be considered in order to continually forex trade profitably.

Editors note:  Thanks Vince for the article from a currency traders perspective.  We can use ETFs to gain exposure to currency.  Some of the most popular are UUP=dollar, FXE=euro, FXY=yen, and the FXF=Swiss franc.

To the Mailbag:
I had to laugh at your reference to Buy Low, Sell High.  It reminded me of our BHSL club (Buy High, Sell Low).  We started it after our solo efforts failed.  Thanks for the laugh.---paid up subscriber D.F.

John’s reply:  I thought about reversing the order!  Honestly admitting and understanding mistakes is part of investing.

It is unreal that hardly any jobs were created with all the spending.  All we get are government census workers!---paid up subscriber T.M.

John’s reply: The world improvers do not understand. It didn’t work in the Soviet Union and it won’t work here.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

MarketToday Home Page

Back to Top