Monday, February 8, 2010

euro exchange rate recovery this week?

Foreign Exchange - Currency Outlook

We must always expect a bounce up off a big move down, and we may get that this week. On Friday, foreign exchange analysts used words like "panic," "frenzy," and "mayhem." Foreign Exchange Traders can’t sustain that level of adrenaline. A pullback is clearly in order. At the same time, it’s important to acknowledge that the US dollar trend has changed and that there are good and ongoing reasons for it. From a high around 1.5145 in late Nov, the euro fell to 1.4580 in mid-Jan, and further to 1.3852 on Friday. This is a huge move and unless something just as bad against the US dollar exchange rate comes along to stop it, we have to assume it will continue. That means we must evaluate the “reasons” given for any euro exchange rate recovery this week with a sharp eye. Just because something is oversold doesn’t mean it deserves to be bought for its own sake.

Deficit hawks have a strong case for disliking the dollar today. Commentators correctly point to gridlock in Washington, which is worse than wimpy presidential leadership, that will fail to resolve the US’ deficit dilemma. Yes, the US has a higher debt burden than Europe, if a bit less than Greece (about 10% vs. over 12% of GDP for Greece and about 6% for the EMU as a whole).

But we say this doesn't pass the "So what?" test. The US can tolerate higher deficits because it has a more flexible and resilient economy that is more likely to generate the higher tax revenue needed to cut deficits. The US is already emerging from the crisis, as Bernanke will talk about on Wednesday when he tells the House Financial Services Committee about removing emergency liquidity supports. Meanwhile, the ECB had to cobble together an emergency liquidity plan that saved the banks, just barely, but is at a loss institutionally on how to resolve the sovereign debt crisis. There is a vast difference. We may criticize the Fed for failing to acknowledge that the financial sector is not adequately self-policing or its responsibility to prevent bubbles, but the Fed did that one job quite well and the incident is ending. This gives the US dollar rate a strong base of support.

This week the data is not very interesting. We get trade, Jan retail sales, Dec manufacturing, and the preliminary University of Michigan consumer sentiment index. There is nothing here to support or detract from the real action, the eurozone saga of what to do about its southern tier.

By Friday of this week, we expect the euro lower, although you never know - if a correction gets a grip, we could end up with a longer-lasting pullback. The worst case is also possible--a choppy sideways move. But keep the faith.

Pounds to US Dollars = 1.5578

Pounds to Euros = 1.1407

Euro to Pounds = 0.8763

Pounds to Australian Dollars = 1.8036

Bye For Now

Barbara Rockefeller

Foreign Exchange Trading

Forex Trading Reports - Click for a free trial

Buying Euros? Buy Euros at the best euro Rates!

Buying Dollars? Buy US Dollars at the Best Dollar Rates!

Buying Australian Dollars? Buy Australian Dollars at the Best Australian Dollar Rates!

Buy Travel Money, Buy Holiday Money, Best exchange rates for Travel Money

Contact IMS Foreign Exchange + 44 207 183 2790

No comments: