Counting Down to Euro 1.60

Week after week I have called for the EUR/USD to break 1.60. Today, the currency pair hit an all time high and is inching ever so closer to that target. It will just be a matter of time before that level is broken at which time intervention risk will increase substantially. Hot Eurozone CPI numbers and weaker US data drove the EUR/USD to its latest milestone.

Inflationary pressures in the Eurozone have never been this strong and because of that, the ECB will be in no rush to cut interest rates or to stop the Euro from rising. With both oil and rice prices climbing to another record high, the central bank will only tighten their leash on monetary policy. Rate cuts are completely out of the question and the only thing that can stop the Euro from rising is intervention.

We have previously mentioned that the European Central Bank’s pain threshold for the Euro could be as high as 1.62. In 2004, the last time the central bank become extremely worried about the movements in the Euro, the currency had rallied 13 percent in 2 months. In the past 3 months, the EUR/USD only rallied 10 percent; a 13 percent move would put the currency pair at 1.62.

As for the US dollar, concerns about the housing market, rising oil prices and the pessimistic outlook by the Federal Reserve districts are all weighing on the dollar.

Although inflationary pressures are a big problem across the globe, the latest consumer price report from the US indicates that the rise in prices has yet to hit the consumer in meaningful way. The numbers are a bit surprising since price hikes have been reported by companies ranging from Kimberly Clark to Hershey’s. The tamer the growth in CPI, the more concerned we are about producers shouldering the cost of rising prices.

Comments

[AmesTiedeman]

1.60? Try 2.00 in a decade or less.

[damienh]

Good point make on Producer bearing the cost

[Brad Harris]

Living and working in Germany for the United States Army, what you wrote in your article is not news to me. I am living it. I am paid in dollars even though we get a cost-of-living-allowan... but it doesn't cost the actually price of living in Germany.

I still think the Euro is so overflated that it is silly. I go downtown and everytime that I do, I see another shop that has gone out of business. The Germans might get nice salaries, but they do not keep it thinks to their government which taxes half of their paycheck. They are paying $7.00 for a gallon of regular gasoline.

There is no reason that the USA should be suffering with the oil prices as we have so much oil in the USA that it isn't funny not to speak of coal. The reason the USA is suffering can be place right on the heads of the USA Congress, both houses. What knowledge can members of Congress, in which 90% of them are lawyers, bring to the economy? Nothing. If you read the bios of these old foggies you will find that not one of them as ever worked in the economy. They attended law school got their license and then went to work for their respective state governments. Senator Kerry is a perfect example. The only work he has done outside of public office might have been when he was the skipper of a boat in Vietnam. Senator Kennedy has never worked a day in his life except maybe on his sailboat or tipping his right hand while holding a drink. I am livid that the American people elect so many lawyers to Congress. We need businessmen, economists, financial and market individuals in Congress. We certainly do not need lawyers. They are the reason along with the environmental wackos that we are unable to drill for oil in Anwar, in the Gulf or elsewhere within the USA. We are not able to build refineries thanks to the environmental wackos. You cannot blame the American people for who they elect if they do not have any good choices. A great example of this is the three individuals vying to be President. The two Democrats are both lawyers and the Republican is a military man who graduated fourth from the bottom in his class. Maybe that is why he got shot down. He really should not have been up in a plane. Surely there are better individuals than these three to be President. President Bush has a business degree so he knew something about economics. That is why he lower taxes. You don't have to be a rocket scientist to understand that if you put more money in the hands of the people then good things will happen and they did just like when Reagen was President. It is Economics 101.

[Coelacanth]

Count-down to EURO 1.60

"It is inevitable" - Agent Smith from The Matrix

[01GTvert]

I predict the euro will hit 2:1 in 18 months. And yes...the MATRIX is a perfect model of what we're living today.