The USA: The dog with less fleas?
It’s weird what a few words could do. After some staunch commentary against inflation from Jean-Claude Trichet last week, the Euro surged 4% against the greenback as Eurodollars rose and the market snatched up the currency.
With a rate hike coming that’s a sure thing right?
People seemed to have forgotten that this (chart below) is still going on there.
Moody’s just kicked the Euro bulls in the balls cutting Greek debt three notches to b1 and reminded everyone of the concerns of default. Bond funds around the world have dumped their positions and have been net sellers of Greek, Portuguese, Spanish, and Italian debt already. Its de ja vu all over again. And last time it didn’t fare well for the Euro.
There is one thing different this time though, as the sky was falling on Europe back then, there was at least some cooperation between the states and the ECB amidst all the desperation. Today, politics has fully taken over monetary policy with all the friction coming from the smaller, indebted states effectively grinding “The pact of competitiveness” set forth by Sarkozy and Merkel to a halt. They wanted Germany to be der Mutter and ATM, and they got it. But now they have a problem.
It’s no surprise that the Germans are not happy being mooched off by everyone else, and with their elections coming up at the end of the month, this might end up badly for the moochers as Merkel faces a tough reelection as she’s been seen as too lenient and sympathetic to the soft money crowd.
And then there’s oil.
What say you monkeys? Are you in the long Euro / short Dollar crowd?
Despite the Ben Bernank’s policies, looming Muni defaults, and what have you, I see the US as healthier and maybe a good long compared to some rate hike rally.
But then again, with everyone trying to be contrary, you might have to go a full 180.
Have good one WSO.
would be nice to have a chart where the US was also included as comparison. Or a separate chart for the US states. I don't think US figures are any better than the average EU numbers. Not really sure I would be comfortable being long in either Euro or Dollart to be honest. Nice chart!
-die- Mutter, nor der... XD. If only Germany was not expected to give any money I would be happy. In any case I agree, long term outlook for the US looks better than that of Europe. In any case the US also has its own issues, mainly political. My bet is on Brazil, eastern Europe and Russia up to 2015, after that, who knows.
Double post.
*Fewer Fleas
I probably need to write a blog post to collect my thoughts on all this but the eur/usd trade is probably the trickiest thing out there right now. On the one hand, the euro has every reason to go up in the short-term but the return of the euro debt crisis and the possibility of turmoil in Saudi Arabia could send people scrambling back to the dollar. For now, I think the euro can climb the wall of worry but it all could come crashing down awfully quick. In any case, the USD should rally the minute Portugal defaults, Saudi Arabia erupts or if we ever get there, when the Bernank raises rates (probably before year end if we avoid an oil crisis).
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