I hope you had a good new year (celebration).
So here we are, our first blog/comment for 2015 and the theme, well why fix what’s not broke: THE USD PARTY CONTINUES.
When I left the office on Wednesday EURUSD was trading 1.2175 and all signs were that it was going to be a quiet one into the final hours of 2014. But the USD had other ideas. Bang THROUGH 1.2100 (low of 1.2087) the EURUSD ended 2014 at 1.2100 exactly!! If someone had a one touch at 1.2100 for 31 December what a wonderful end of year gift. So far today the low has been 1.2034 and the cross-hairs are now firmly set on a BREAK of 1.2000 (yes I know I keep repeating it, my target set in July 2014). I might be a few days out but overall I am pretty chuffed with PARITYFX’s call (am I blowing my own trumpet … ).
Economic data this morning: Spanish PMI 53.80 from 54.70, Italian PMI 48.40 from 49.00, French PMI 47.50 from 47.90, Greek PMI from 49.1, German PMI 51.2 from 51.2 and finally EU PMI 50.60 from 50.80. On the whole you can see once again the data coming out of the biggest economies in the EU is pretty heart-breaking. With the Greek elections due on the 25th January and a REAL THREAT the left-wing Syriza Party will win, you can see WHY the USD is so strong. Powerful data and trends in the USA compared with dull to negative trends in the EU = SELL EUR -vs- BUY USD. NOW CAN YOU SEE WHY I KEEP SAYING EURUSD IS GOING TO PARITY(FX).
While we cannot rule out Greece leaving the EMU, we think this is VERY low probability. As a kid you can throw your toys out the cot, but once the “red” has disappeared and calm sets in it will be plain to see that exit is just NOT an option and dialogue will be needed to keep everyone happy. Syriza has stated it intends to keep Greece inside the EMU. They will no doubt flex their muscles and try bully their way in Brussels. The ECB MUST hold firm because they know if Greece try and pull that stunt and have the rug pulled out from beneath them, the county will be bankrupt before the summer season starts. In fact you will probably be able to buy a Greek Island for a couple EUR. Given the issues and prospects for continued deterioration in the EU as a whole one of the largest Banks in the UK/World has predicted EURUSD will end 2015 at 1.0700. Their arguments is (1) the diverging monetary policies, (2) expectation for the announcement of QE by the ECB at its January 2015 meeting, and (3) the political uncertainty ….should all provide deterrents to being LONG EUR.
Just in case you missed it, Lithuania is the newest member of the EUR. They are the last of the three Baltic States to join the currency union and will be the last country to do so for the foreseeable future, with remaining European Union members at least two years, and probably much more, away. Estonia joined the EUR in 2011, followed by Latvia in 2014. All three Baltic nations joined the EU. So MORE MOUTHS TO FEED. I wonder if Pres. Draghi had a good Xmas/New Year? Draghi’s recent warning in an interview that the risk of the CB failing in its mandate of preserving price stability was higher now than six months ago simply added fuel to the burning EUR. Comments like this will simply hurt the EUR, dragging it further down USD and GBP. Talking about EURGBP, we are a MERE 60 pips away from my initial target (0.7700-1.3000) I forecast a few days ago ( when we traded at 0.7860 – 1.2722).
I WISH YOU ALL THE BEST FOR 2015. MAY IT BE A BRILLIANT ONE