For most of the last couple of years, the non-dollar, non-yen currencies have moved with a remarkable degree of correlation. Priced in US dollars, over a multi-month time frame (and usually even minute-by-minute) there has been little difference between the Euro, the Canadian dollar, the Australian dollar and the British Pound. The correlations are not perfect, and they break apart from time to time (as when the pound had a relatively crappy summer and fall last year). The last couple of days have been terrible for the Euro (white) and its ever so slightly “harder” twin, the Swiss Franc (purple):
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What to make of this? Well, I have no reason to think that the gap won’t be closed before long. Sentiment on the Euro is so negative that I still think a violent short squeeze is possible, especially if there is continued strength in the equity, commodity and other currency markets.
Another possibility is weakness or sideways behavior in the general risk trade, with the Euro holding a bit firmer than the rest. It is so oversold that something eventually has to give. Of course, as we saw with the dollar from August through November, oversold can become more oversold, but that was a decline of a different nature: a lower slope, with a stair-step pattern. The Euro has basically crashed straight down over the last two months. That pace won’t be sustained for very long without relief rallies like what we’re seeing this week in the other currencies.
As I write, there is some support on of their charts. We’ll see if they bounce or cut through — the latter would be all around bearish and may portend a little panic in stocks, etc.
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Oh — and how about that Euro/Swiss relationship? How do you explain the Swissie’s moves by the Greece situation? The Swiss National Bank won’t be printing anything to bail out Greece, and in fact might be expected to print less, given their talk of intervening to attempt (foolishly and with no lasting effect) to weaken the CHF vs. their biggest trading partners’ script.
Hi,
do you think we are in wave III down of EUR/USD ?
I live in Greece, it’s unbelievable, and we play the world markets at the moment. I noticed that first when it started and wrote it in a Greek blog, nobody be lived me. In fact they told me that GS gave target price 1.55 if you remember. It was when euro dropped suddenly to 1.48
I watched the Greek news and market, that night it was a strange comparison between Greek news and world markets.
Wave 3 down on a longer time frame, yes… I think we will see $1.00 per euro again. The rally I’m thinking about would be for 1-3 weeks only.
The news has little relation to the markets — the sovereign debt situation was there in black and white for anyone to see when the euro was 1.60. The crowd makes up reasons for what it is doing as it goes along.
By the way, I’d be interested to hear what things are really like there now. I spent a semester in Athens while in college, back when it was a cheap place and still used the Drachma.
What do people think about the debt? That taxes should go up? Do many people blame the unions? Is anyone advocating default (which I think is the best option for the country, as for all the other indebted countries, including the US)? The people just get the bill, and the politicians, unions and bankers get the benefit.
Hello Mike,
sorry for taking a while to reply you.
The situation in Greece has changed much in the last decade.
1999 Greeks got the first hit from the Greek stock market, many people lost life’s saving, it was a mother bubble then ( ASE topped at 6300 ).
When we moved in to euro ( we supposed to get in to a stronger currency than the drachma ) things got more expensive in one year but people got confused due to exchange rate.
I think they must had made a lot of false debt accounting then.
A lot of corruption in governments was going on those years. Programs with EU funding that supposed to bring up Greece to the EU average level was going in politicians and business me pockets.
The two big parties to ND and PASOK were in power, one following the other.
To get elected they used to do a lot of favors to theirs friends depends on what position the had in the votes pyramid.
When the financial crisis occurred in 2008 things started to change fast.
The politicians tried to hide the situation but it got out of control a few months ago.
Now they try to get the bill to the people and try through the media to convince them that it is necessary to take emergency measures. In a last poll people seem to support the government’s efforts to save the country.
At the same time many people know that lot of nation’s money have been grabbed abroad.
If thing get worse i expect a lot of raids to happen in Greece.
I read a lot of your articles and i think you are very good in your analysis and forecasts.
I am not an economist but i like to anallise as much as i can.
When you say advocating default what do you mean ?
Hi Alex,
Thanks for taking the time to reply. It is sad what has happened in Greece, but it is the same story all over the world. The situation in the US is not really much different, except that we have our own central bank to print money and buy our debt, so we don’t need to actually default.
The politicians are just the same — the do not work for the best interests of the country but are all corrupt.
When I say that I am advocating default, I mean that the best thing for the country would be for the government not to pay back its debt. Greece should just say to the world, “We are very sorry, but we can’t pay you back. Good luck to you.”
Investors in Greek bonds would lose money, and Greece would find it very expensive to borrow money in the future, but taxes would not need to go up. The government would have to fire lots of useless workers or lower their salaries.
There would be strikes and protests, but in the end the country would be much stronger, since the people who work in the private sector would get to keep more of their money to spend and invest.
The debt benefits mainly the politicians and their friends, as well as the government workers. It hurts the majority of people, so the best thing to do is just to not pay it back. This is perfectly moral, since government debt is not like private debt, and investors knew that there was high risk in this debt and were paid for it with higher interest rates than for example in German debt.
The riots and strikes will be unpleasant, but when it is clear to people that they will get nothing for their efforts, they will calm down and life will go on.
I wish the best for Greece. I really enjoyed my months there back in 2000. If it were up to me, I would default on this debt, fire 90% of government workers, lower taxes 90%, leave the EU and bring back the silver drachma: http://www.akantiek.eu/x/gre1.jpg