THE USD STRIKES BACK

Good morning

EUR/USD hit a 1 year low this morning  trading at 1.3113 as uncertainty surrounding the level and potential QE from the ECB remains on everyone’s minds and more importantly on traders overall perceptions of EUR (and EU in general) .

I have spoken MANY times about this subject. In fact back in July I commented that the USD was due a massive reversal from 1.3750 given the state of the EU. This is now starting to gather more strength and the general feeling is this is JUST THE START. I have further stated (later backed up by Gov. Draghi of the ECB that the EUR is too strong and is making European manufactured goods “more expensive” and hence less competitive. The bottom line my dear reader, is the EUR HAS TO FALL and fall hard!!! I have no doubt that come December you could quite possibly see the EUR/USD SUB 1.2000.  Sounds like fiction? WHY? Looking at the numbers you cannot escape the facts. Growth, wage growth, retail sales, manufacturing PMI, unemployment, labour laws….the list goes on and on. The biggest problem facing the EU is you have 18 countries (of the 28 EU members states) all pretty much in DIFFERENT states of healthiness and growth yet all dictated and cut by the same cloth. It is like playing Barnet football club in the same league at Manchester united (I tried to find the best match in terms of ability).

The point I am making is you cannot expect to retire in Greece at 50 and live in Mykonos drinking Sangria while your brethren elsewhere are working their socks off to pay the bills. There needs to be an overhaul, but that takes time and money, both of which are in short supply. So going back to my point above, whats the one way where everyone benefits….DEVALUE THE CURRENCY!!! Let’s hope someone out in Brussels and the ECB read my Blog or at least sends them a copy.

Re the CB meetings this week, Australia left rates unchanged  as expected at a record low of 2.5%. This marks the 13th consecutive month of the 2.5% rate, which is the equal-longest period of stable rates since the RBA began to target the cash rate in the mid 1980s. The CB retained its neutral bias as it repeated that “on present indications, the most prudent course is likely to be a period of stability in interest rates”.  The RBA complaint about the higher exchange rate was reworded, lengthened to “the exchange rate … remains above most estimates of its fundamental value, particularly given the declines in key commodity prices [and hence] it is offering less assistance than would normally be expected in achieving balanced growth in the economy”.  In all likelihood the RBA will start seriously looking at hiking around Q1 2015 like the rest of the herd.

On another note, a major UK Bank put out a piece this morning about RENEWED INTEREST IN CARRY TRADES!!! Don’t forget PARITYFX SAID IT FIRST……Let us know if you want to see the article.

GBP/USD followed the USD o/n moving from 1.6645 (open yesterday) to 1.6555 currently. EUR/GBP has given up some of its gains moving from 0.7895 to 0.7925 as I write this. Short term the trend appears to be intact with a move to 0.7700 the target (by December). GBP/USD on the other hand scares me given the force in the USD.  We have probably not seen the end in the demise of the GBP against the USD.

Lastly if you read our blog back in July I mentioned repeatedly how September is the month when the fireworks start. September is the month when institutional investors and traders traditionally return to their desks after their summer breaks and it’s also a month when trends can change as they make a fresh assessment of the markets.

Given the recent rhetoric about the strength and rise in the equities market, one could probably say that equities are the most vulnerable to a reassessment. They’ve had a fabulous (2014) bull market thanks to the world economy being saved and because of QE by the US/UK. As for the forex markets, it is tempting to conclude that current trends will carry on, namely a continued strengthening of USD, especially when adding in the toxic geopolitical tensions brewing in many parts of the world. If only Nelson Mandela was still alive and happy to get involved.

Have a great day ahead

Leave a Reply

Your email address will not be published. Required fields are marked *