hedgeman

The Euro's Long Run Is Finally Over

It is not over yet.


EURJPY 162.00, watch for daily close bellow. We should see a fast drop to 150 if that happens. In current conditions it is my belief that USDJPY will take more heat and this should stop (reverse) the rising USD. Long EURJPY positions (used as proxy long commodities) are relatively large and part of EURUSD selling was unwinding the EUR part of these position. The rise of USD happened much faster then anticapted and USDJPY is expensive longer term above 110.00. Providing defense of 162.00 is succesfull I do not exclude a rally to 115.00 but there the fun is defenitely over.

As for the EURUSD... it will take 2-3 quarters and final spike to 1.69 in 2009 (65.xx in USD index) before it will finally be over. Important levels (short term 1.4630), longer term 1.36-1.42 area will serve as accumulation area. Since momentum is extremely strong picking a bottom before we see a higher weekly close is not advisable.

The U.S. Dollar: A New Accord

JPY will be the star in 12-18 month time frame. Especially against the EUR. If the new Plaza accord is in place the "official" boys will sell EURJPY in order to strengthen USD. JPY is in the heart of the credit bubble and officials know it. Japanese economy should be able to withstand USDJPY bellow 90 and EURJPY should revisit 140 (an important level in the ECU era)... FWIW

The U.S. Dollar: A New Accord

The dollar should experience a midterm correction upwards of some 5%. Real economy should stop the advance and provide a good shorting opportunity (adding to positions) for the big hedge funds. My guess is EURUSD 1.69 and USDX around 65 in first half of 2009.

There were times when interest rate differentials weren't the most important factor in the FX world. History will repeat itself. I feel the fixation with interest rate differentials between major currencies is a direct consequence of the lax credit practices. And we all know this story is already unfolding.

The case for 5% up for the USD measured against a basket of other US trading partners (6 month time frame) is due to the lagg in slowdown in economic activitity between US and other economic blocks.