4 Responses to “Sympathy for the euro”

1. PEJ
   February 23rd, 2010 at 9:12 pm

   

   I’m thinking there’s a little bit more on the downside to go. Say around 1.30-1.31 then a rally to around 1.40-1.41, before the downside resumes?

2. Graphite
   February 23rd, 2010 at 9:48 pm

   

   I was thinking along similar lines Pej, especially after the euro DSI corrected back up into the teens on the brief weekend rally.

3. rogerjarema
   February 24th, 2010 at 2:59 am

   

   The DSI dollar bulls is at around 90%, a very high number, but given the magnitude of its rally against EUR, it’s understandably so. In Aug/Sept last year, the dollar bulls was at 3% while the dollar wasn’t declining that big. I remember it was at high 77s-78 while it was drifting lower, rather than plunging. Yet given those conditions, the dollar could still make further lows until it all ended at 74.2. What I’m saying is those extreme numbers don’t preclude further exaggeration of the move. It had more extreme numbers than now yet the preceding direction could still prevail for sometime.

   At this juncture, I would think that PEJ’s scenario is the most logically plausible (of course, it doesn’t mean the market will necessarily move in that way). Commodity currencies & commodities bumped into significant resistance & were strongly rejected. The picture will be kind of messed up if commodity currencies plunge, yet the euro rallies.

   And to even make the currency complex more confusing, the yen isn’t exactly behaving like a safehaven currency anymore. From EW perspective, the yen arguably had 5 waves down from Nov 2009 highs. It then has some seriously overlapping bounce, kind of looks like a bear flag. Now it’s out of the bear flag, but it’s likely a more complex correction rather than 3rd wave down from the RSI readings. X-wave or something.

   Things will get really interesting when the yen goes down as we enter the new round of the crisis. That will make the dollar as the sole currency safehaven. Japanese sovereign default is probably looming? With deteriorating demographics, those Japanese savers may sell JGBs at which they saved their money. With even a minuscule 1.3% rate for 10-yr JGBs, interest rate payments already accounts for 1/5 of Japanese govt budget. When those Japanese savers are selling JGBs, what will happen if 10-yr JGB yields 2% or above?

4. Pej
   February 25th, 2010 at 11:40 am

   

   Thanks for the insight rogerjarema
   and generally speaking, thanks graphite and rogerjarema for agreeing. Although i hope not too many people agree with this scenario