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| Daily Jurojin - Wednesday, April 22, 2009 |
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Wednesday, April 22, 2009 The euro's deep, dark holeThe single European currency closed Tuesday's at around $1.2945 making it two days in a row beneath $1.30. Traders love round numbers. They serve as psychological hurdles to jump over and under and when a product reaches a round number it serves to attract more players to the table in search of a rapid continuation. It's a bit like a growing crisis with more people stopping in their tracks to see what's going on.By rights the euro should have advanced Tuesday following the first time since June 2007 that German investor confidence turned positive. And on top of that, analysts' best guess ahead of the number was for a further albeit smaller decline in confidence. But all the euro could do was rally to $1.2980 ahead of U.S. trading hours before flopping again. Later in the day, inspired by the rousing words of Tim Geithner testifying to Congress, the euro tried to steal more back from the dollar as traders sighed in relief, stepping up their risk appetite once again. This time the euro stole second base at $1.2990. But despite a dive into the warmer waters of the equity market pool, the euro gave up those gains and plumbed the lower half of the day's range again. Why is $1.30 so important you might be asking? Because this is where the euro was the day the Fed anointed quantitative easing, which at the time created the closest thing we've seen to a run on the dollar for many years. Within the space of a week the dollar had yielded 10 cents to the euro. The world and its mother argued that there was NO WAY the Europeans lift the dust covers off their printing presses. The fact is that the American response to the domestically inspired financial crisis is better organized and arguably more mature than anywhere on earth. Embarrassingly, the turmoil inflicted appears to be worse in Europe than in the U.S. But the rather regimented and dogmatic Europeans are painfully slow to push interest rates to zero, while politicians dare not breach the Maastricht Treaty. The contraction in European manufacturing, a mainstay to the German way of life especially, has collapsed and shows no signs of life. The investor confidence reading earlier this week was in stark contrast to any other data emerging from continental Europe where surging unemployment is adding to the social cost and causing spending by member governments to reach well past the acceptable, not to mention legal limits. Oh the fines that should be going in to the coffers in Brussels!! This all leaves the euro pretty rudderless and it's no surprise to us that even as investors pick up the risk appetite stick, it seems to preclude the single currency these days. Yes, $1.30 is becoming the new selling point for technical traders wanting to get short. The chart looks pretty sickly and with positive sentiment increasing absent these days, the euro is tumbling into a rather dark hole. By many people's admission, the prospects for U.S. recovery are dimmer than the equity market would have us believe. Employment losses are likely to increase throughout the remainder of 2009, dragging down consumer spending. Housing prices are likely to also weigh heavily on spending decisions. Yet this 'recovery' is courtesy of ZIRP - a zero interest rate policy and copious billions of government spending on shoring up its national banking system along with rebates for customers buying fuel efficient cars or first time homes. Europe's answer? Very little beyond procrastination. It's little surprise that the euro is losing any remaining friends. One would think that under normal circumstances that a cheaper, sub-$1.30 euro might increase its appeal. But these aren't normal times and the ECB and governments of Europe are sitting on their hands collectively failing to reinvigorate the Eurozone. As a target for the euro, we'd look to the next round number of $1.25 as a first stopping point. Technically the selling we witnessed on Tuesday as the euro tried to recover was perfect and that encourages us to put the blinders on and reach for five cents lower. Beneath that, the June euro future has a life low at $1.2456, which is just around the corner while the cash low should act like a magnet to $1.2330. The Supreme Council of the Secret Order of Jurojin |
