It seems that the Euro bulls will jump on any passing bandwagon these days. It is very clear that there are some big names out there who are desperate to avoid a sub 1.30 slide in EURUSD (at least for the time being).
Despite riots on the streets of Greece and elsewhere, Europhiles everywhere found the very idea of the embattled ECB swaping coming-due Greek bonds for longer dated ones so attractive that we ended the week well above that key 1.30 number. The weekly candle was a hammer, so let’s not expect our crash to come so soon, but come it will as when we strip this whole affair down to the bare bones, nothing has changed.
If anything, things are getting worse. Sarkozy doesn’t look like he will survive the coming elections, leaving France with a far more left wing President, thus substantially weakening Merkel’s position. Remember, she has also just lost one of her closest domestic political allies in hand-picked president Christian Wulff, who resigned amid a scandal. French and German taxpayers are annoyed, very annoyed at the constant bailing out of their neighbours, and rightly so.
A class full of C-average high school economics students could tell you that this is a house of cards ready to collapse. Like the Madoff ponzi scheme, nothing lasts forever. Alas, Mr Madoff did not have a printing press in the Lipstick building.
In short, the Euro is putting up the fight of its life to defend 1.30, because the ECB knows that freefall will ensue should we see a convincing breach. Even the Euro "doom and gloom" brigade here at www.faholofx.com have been somewhat conservative in their down-calls to 1.25 medium term. Some analysts are looking at 1.18 and many even as low as parity. However, we still call 1.25.
The economic and political map is changing significantly. We are looking at the NASDAQ and Oil primarily for USX action. The situation in Syria goes from bad to worse, whilst Iran continues to irritate the US and European equity markets, which in our view, are overvalued.
Even Gold seems less preferable to the greenback at present and we maintain that the USA is in a far, far stronger position to fight back than the much less ‘united’ Eurozone member states.
Once the slide begins, we should also see some improvement in USD against the Aussie and the Loonie. These are very cautious times, and one where the traders with the patience and lack of emotion should win out.
One further point. Compared to just a few years ago when Euro-mania was rife within some mainstream UK political factions, all major political parties in the are stating catagorically that Britain will not join the Euro within our lifetimes.
UK readers will be familiar with the expression, "slowly, slowly, catch the monkey". That’s our view, certainly for the weeks ahead.
As always, Faholo clients will be given constant updates on the positions we are taking, why we are taking them, and when we will be taking profit.