Four Good Reasons to Sell the Euro

Things are appearing a bit dicey across the Atlantic pond for our friends in Euroland. The euro (exchange traded fund FXE) is going through a trial by fire in this global financial crisis. Here’s a few good reasons for selling the Euro:

1) Eurozone retail sales fell -4% yr-over-yr in February from -1.7%. Consensus expectations were -2.5%.

2) The PPI contracted -1.8% yr-over-yr. Deflation?

3) Eastern Europe, as well as the weaker EU members, will need asistance from Germany and France. The IMF funding will not be sufficient to address all their needs and none of these countries is likely to submit to the draconian requirements for accepting IMF loans.

4) On a technical note, the weekly or intermediate trend for the FXE shows the euro failing to break resistance and the weak volume during its upward move has all the appearance of smart money selling into strength.

The European Union and its currency are being tested and there is uncertainty surrounding the ability to pass or fail. Will Germany and France, the top two EU leaders, be willing and able to provide economic assistance and if so, will their constituents support such a move? Everyone knows how much the market abhors uncertainty.

Conclusion for the euro: if you’re long, you’re wrong…

Disclosure: Hillbent.com, Inc. or its affiliates may own positions in the equities mentioned in our reports. We do not receive any compensation from any of the companies covered in our reports.

Comments

[dtblount]

Great analysis and I agree 110%. Taking your 3rd point a bit further, the credit exposure to emerging Europe has yet to take full effect on the eurozone and EUR...especially with some recent headlines I've seen regarding "shortcuts" to EUR membership, which will just magnify the ECB's blanket rate decision dilemma. The IMF might be able to provide a backstop for some of these economies, but not without some bloodshed and a weaker EUR.

Short EUR vs anything, especially USD or JPY, is quite tricky though...since commodity prices, Xfer pricing/corporate FX, and the daily ebb and flow of equities (and a jittery VIX) can really add to short term volatility in chasing long term views.

2009 Apr 07 12:22 PM

[blog.kerdos.com]

Dear Sir,
All your reasons are minor details compared to the hyperinflation that will demolish the dollar in the coming years.
Your printing presses are in full speed. "Save the situation now and worry about the consequences later".
Trichet and company are a bunch of shrewd foxes. Europe will survive the crisis, and when things get back to normal, more countries will join the euro, and the Chinese, among others, will have alternatives for their reserves.
Please excuse our lack of detail but as we are writing this the market is down 160 points so we are rather distracted. At this time the USD follows the market like a puppy dog.
Market goes down USD goes up. It has nothing to do with your PPI and eurozone retail sales.
As for deflation my favorite ice cream keeps getting more expensive, not to mention my favorite Scotch.

2009 Apr 07 01:24 PM

[J Clinton Hill]

thanks for your input... i actually tend to agree with you, but i think you're referring to a secular event that will take more time to develop... eventually europe, china, etc. will succeed in breaking the dollar, but they can't right now because there is no globally accepted and stable political infrastructure to support another currency...

right now, i'm just interested in current issues impacting the existing market direction... bottom line is the euro is weaker and i make money.... regardless of national allegiance or preferences for political ideologies, my concerns are purely mercenary.... if you followed my advice on FXE, then the price of ice cream and good scotch become irrelevant...

p.s. no offense, but you must be european.... they tend to take things like honor and principle to the nth degree.... their feathers get ruffled very easily... (just kidding....)


On Apr 07 01:24 PM blog.kerdos.com wrote:

> Dear Sir,
> All your reasons are minor details compared to the hyperinflation
> that will demolish the dollar in the coming years.
> Your printing presses are in full speed. "Save the situation now
> and worry about the consequences later".
> Trichet and company are a bunch of shrewd foxes. Europe will survive
> the crisis, and when things get back to normal, more countries will
> join the euro, and the Chinese, among others, will have alternatives
> for their reserves.
> Please excuse our lack of detail but as we are writing this the market
> is down 160 points so we are rather distracted. At this time the
> USD follows the market like a puppy dog.
> Market goes down USD goes up. It has nothing to do with your PPI
> and eurozone retail sales.
> As for deflation my favorite ice cream keeps getting more expensive,
> not to mention my favorite Scotch.

2009 Apr 07 02:38 PM

[david02360]

I have traded currencies for 30 years. The one thing you can be sure about is that they take no notice of things like retail sales and job numbers except for a couple of hours or so. The items that matter are interest differentials and inflation or the possibility of inflation. The direction of the Euro will be determined by the European bank on its decision yes or no to buying back national debt (quantitative easing).
My own guess is that the Germans will forbid it

2009 Apr 07 06:21 PM