It’s interesting looking at the surge in Renault shares this morning, the move was on the back of Q1 numbers beating analyst forecasts. The automobile company mentioned the weak euro and stronger demand in Europe. It’s the second bit that really captures the imagination, that’s great news however you want to look at it. As an aside, I personally will not be buying Renault stock here, I don’t think I’ve ever seen a better representation of a 5th wave completing – that’s Elliott Wave Theory speak for what looks like the end of the rally in Renault shares.
Wherever that stronger demand is coming from, it’s unlikely to be France, which really looks like the sick man of Europe. Look south across the border and you’ll see a Spanish economy well into its 2nd year of post crisis recovery with employment expanding albeit from depression style levels, and then look northwards across the Maginot Line and you can also see a German economy that’s chugging along at quite acceptable levels. Suffice it to say that there are pockets of hope in the Eurozone economy amidst the more gloomy areas we’ve had to dwell on over recent times. But the gloom continues to dominate, and it’s to Greece we look, with the government capitulating to creditor demands (why do they put themselves through all this if they eventually succumb? Somehow it seems even more humiliating! Or perhaps it’s just me…). Earlier this week the anti-austerity government caved in to demands and ordered local authorities in Greece to hand over spare cash. Needless to say, they aren’t flavour of the month at home now and I suspect life will get very difficult for them, it’s one thing to be in opposition but the realities of governing are an entirely different species of problem. Welcome to the party! The approval ratings of Syriza are in free fall already and they’ve been in government barely 2 months. The government faces a tough time finding €1.7bn to meet April’s wage and pensions bill, and let’s not even consider the €0.75bn IMF payment due in 3 weeks. The good news is that if Greece pushes ahead with a list of reforms it could pave the way for over €7bn of loans from its Eurozone partners, the bad news is that without these reforms it’s probably impossible to stave off default in May/June or later in the summer as there are large payments due to the IMF and ECB looming.
Why is the euro not weakening in the face of this potential calamity? That’s a tough one on to answer, I suspect there will be some compelling reasons a posteriori, but for now I am keeping an eye on the price action. The euro in recent days has strengthened and early this morning was in danger of breaching the 1.09 level in EUR/USD. This tells me that we’ll need to see very very bad news before the euro can continue on its weakening trend. As I’ve said in recent times I have doubts about that occurring before June or July, as the prior 11 month trend needs time for a corrective pause before it can gather strength again. I believe this is what is happening as too many US dollars are owned right now, it’s hard to find that marginal buyer. This is evident in the price action of the greenback against a swathe of currencies, just look at the pound sterling just 2 weeks away from a completely unclear UK electoral outcome. The British currency’s appreciation against the dollar is something that is hard to comprehend in the face of all the political uncertainty. I can also direct you towards AUD/USD which has been appreciating in recent days despite all the disappointing China economy related news. Quite clearly the narrative is about the US dollar, not these other currencies, I contend as I’ve already indicated that US dollar positioning is not allowing further strengthening for the moment.
It seems to me, given the dynamic which is in play, at the moment, that if you have US dollars to buy or sell, you will have good ranges over the coming weeks to implement either objective. The trick will be avoid being greedy, at least get some done and then try to work a better average for the full amount.
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