Euro a Bullish Year is Coming???
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Euro a Bullish Year is Coming???
- Thread starter givemesomemoney
- Start date
Nothing governs the movement of one currency against another more than the yields of that currency's central bank.
Right now the USD enjoys an interest rate advantage, and it is that advantage that has driven the dollar higher against the euro.
Find data for both the FEDS rate and ECB rate and divide the FED by the ECB...
Any time the result is greater than 1, there is an advantage in the former over the latter.
Many anticipate that Helicopter Ben will raise rates once more if not twice more. Even when the Fed stops hiking rates, there will be 2 to 3 basis point advantage of the dollar over the euro.
Many 'experts' predict a continued rally in the dollar for the first quarter. When the ECB starts hiking, and they will, the perception and reality of advantage of USD v EUR will wane if not evaporate.
It will then that the dollar resumes its bearish move down, fed by most likely increased inflation and budget defitics of this country.
Predicting is a fools game.
Understand what and why currency moves relative to other currencies.
Good luck.
Right now the USD enjoys an interest rate advantage, and it is that advantage that has driven the dollar higher against the euro.
Find data for both the FEDS rate and ECB rate and divide the FED by the ECB...
Any time the result is greater than 1, there is an advantage in the former over the latter.
Many anticipate that Helicopter Ben will raise rates once more if not twice more. Even when the Fed stops hiking rates, there will be 2 to 3 basis point advantage of the dollar over the euro.
Many 'experts' predict a continued rally in the dollar for the first quarter. When the ECB starts hiking, and they will, the perception and reality of advantage of USD v EUR will wane if not evaporate.
It will then that the dollar resumes its bearish move down, fed by most likely increased inflation and budget defitics of this country.
Predicting is a fools game.
Understand what and why currency moves relative to other currencies.
Good luck.
"Understand what and why currency moves relative to other currencies."
OK. One remark needed here:
When you refer to the "rate advantage" - you realy mean the flow of funds into the US.
This should be the real answer here:
The FOREX exchange rate depends on the flow and the flow depends on the interest rate differential.
This means the rate is not a primary concern. The flow is the primary concern!
So now you have a report on the foreign transactions for the 3rd quarter and guess what... The flow has been reversed !!!
Even though there was HIA flow and high yields in the US.
Do you have any clue why? WHY?
Funds was 3.5% and Euro zone rate was 2% and still the flow was negative!
So be very carefull with this "dollar strenght" prediction in 1st quarter of 2006
In my opinion we'll see a yield inversion on treasury 10 against 30 + we'll see inversion on 10 against FUNDS and the market will get scared.
I think all that because the liquidity here in the US so big - which you can see on these 13 weeks bills - that any signal of the end of tightening will end up with a sudden and significant yield drop. Look for yourself! The funds is 4.25 and the short yield is 3.9%!!
The more FOMC hikes the bigger the negative spread there!
One remark from FOMC and this will also be the case with 10 year treasury!
The same thing happend in 2000.
Then, after that we observed a hudge collapse of stocks and US Dollar weakness. Now it looks even worse.
The yield spreads are smaller than in 2000. In my opinion it looks terrible!
There is nothing more bearish for a dollar. This is an ultimate selling signal.
It is possible we will see it in January.
I think it is going to happen for sure within next 6 months.
There is no way FED will tighten more than 3 times when such reports keep coming:
http://www.census.gov/const/newressales.pdf
Typical year end was always weaker, but not a drop from 110 to 85!
That's not a correction! That's a disaster.
So overall - I think the USD will go down. I think the USD strenght is history. Forget it.
OK. One remark needed here:
When you refer to the "rate advantage" - you realy mean the flow of funds into the US.
This should be the real answer here:
The FOREX exchange rate depends on the flow and the flow depends on the interest rate differential.
This means the rate is not a primary concern. The flow is the primary concern!
So now you have a report on the foreign transactions for the 3rd quarter and guess what... The flow has been reversed !!!
Even though there was HIA flow and high yields in the US.
Do you have any clue why? WHY?
Funds was 3.5% and Euro zone rate was 2% and still the flow was negative!
So be very carefull with this "dollar strenght" prediction in 1st quarter of 2006
In my opinion we'll see a yield inversion on treasury 10 against 30 + we'll see inversion on 10 against FUNDS and the market will get scared.
I think all that because the liquidity here in the US so big - which you can see on these 13 weeks bills - that any signal of the end of tightening will end up with a sudden and significant yield drop. Look for yourself! The funds is 4.25 and the short yield is 3.9%!!
The more FOMC hikes the bigger the negative spread there!
One remark from FOMC and this will also be the case with 10 year treasury!
The same thing happend in 2000.
Then, after that we observed a hudge collapse of stocks and US Dollar weakness. Now it looks even worse.
The yield spreads are smaller than in 2000. In my opinion it looks terrible!
There is nothing more bearish for a dollar. This is an ultimate selling signal.
It is possible we will see it in January.
I think it is going to happen for sure within next 6 months.
There is no way FED will tighten more than 3 times when such reports keep coming:
http://www.census.gov/const/newressales.pdf
Typical year end was always weaker, but not a drop from 110 to 85!
That's not a correction! That's a disaster.
So overall - I think the USD will go down. I think the USD strenght is history. Forget it.
Quote from oneway:
Nothing governs the movement of one currency against another more than the yields of that currency's central bank.
Although this makes sense.. i did some study on interest rate differentials.. but the differential alone is not enough.. also need to factor in GDP growth is a huge factor...
Look at Japan.. then have had lower rates than US for many years.. yet the currency continues to be rather strong if u look at a multi year chart...
Based on your thesis since the yen yield 0% it would have very little value... but relative to US dollar its stil quite strong..
Quote from Trend Fader:
Although this makes sense.. i did some study on interest rate differentials.. but the differential alone is not enough.. also need to factor in GDP growth is a huge factor...
Very good.
Now going back to fundamentals:
Anyone watching the level of household debt growth here in the US will notice the slowdown in the rate of it's growth in 2005. (Not to mention the M3 which is also relatively miserable)
Now - just technically - we had an exponential mortgage growth in 2004 - now we observe some sort of a peak on that curve.
I'd say - based on some reports - we should observe a slow down in GDP numbers within 8 quarters after 2005.
Why?
Simple. Minimum of 50% jobs were created by home lending. Therefore slowdown in lending will take these jobs away permanently.
That + assets devaluation will push the dollar down strong.
Whatever we do - we won't be disappointed by a steady FOREX.
We will observe strong movements all the way through 2007.
Quote from MrProfit:
Very good.
Now going back to fundamentals:
Anyone watching the level of household debt growth here in the US will notice the slowdown in the rate of it's growth in 2005. (Not to mention the M3 which is also relatively miserable)
Now - just technically - we had an exponential mortgage growth in 2004 - now we observe some sort of a peak on that curve.
I'd say - based on some reports - we should observe a slow down in GDP numbers within 8 quarters after 2005.
Why?
Simple. Minimum of 50% jobs were created by home lending. Therefore slowdown in lending will take these jobs away permanently.
That + assets devaluation will push the dollar down strong.
Whatever we do - we won't be disappointed by a steady FOREX.
We will observe strong movements all the way through 2007.
You have to put housing into context of global supply and demand... US is not the only place that has had massive debt in terms of current account deficit.. look at New Zealand.. running huge deficit and scary consumer debt.. UK current accuont is creeping up... so take it for what its worth.. our problems are not unique... its something going on in the world as a whole..
--MIKE
Oh man, please put the amounts into perspective. You are talking about a country with 4 million people and 1 major city.
C'mon man, be reasonable.
US is a different story!
More debt ever and more money creation than anywhere in the world.
More USD than ever before. 88% of transactions involving USD.
On top of that FED will cease publishing of some M3 components in March and issue even more money.
This means anyone willing to cash their UST in excess of the market ability to absorb - would be issued currency by FED.
This will create unique environment of constant overliquidity and low yields.
Imagine every foreigner running away from US Bonds: They will all get cash at once! What will happen to USD?
So forget Zealand.
If for any reason there is a panic somewhere in the world - the speculators come and buy all the bonds right on the spot. Because it's cheap.
Noone will come to US for that reason - because bond prices will not fall thanks to FED!
It would be otherwise!
Fall in foreign bonds will attract speculators to sell UST bonds.
The reaction will go to FOREX.
Whether you like it or not.
It's that simple.
C'mon man, be reasonable.
US is a different story!
More debt ever and more money creation than anywhere in the world.
More USD than ever before. 88% of transactions involving USD.
On top of that FED will cease publishing of some M3 components in March and issue even more money.
This means anyone willing to cash their UST in excess of the market ability to absorb - would be issued currency by FED.
This will create unique environment of constant overliquidity and low yields.
Imagine every foreigner running away from US Bonds: They will all get cash at once! What will happen to USD?
So forget Zealand.
If for any reason there is a panic somewhere in the world - the speculators come and buy all the bonds right on the spot. Because it's cheap.
Noone will come to US for that reason - because bond prices will not fall thanks to FED!
It would be otherwise!
Fall in foreign bonds will attract speculators to sell UST bonds.
The reaction will go to FOREX.
Whether you like it or not.
It's that simple.
Quote from MrProfit:
Oh man, please put the amounts into perspective. You are talking about a country with 4 million people and 1 major city.
C'mon man, be reasonable.
US is a different story!
More debt ever and more money creation than anywhere in the world.
More USD than ever before. 88% of transactions involving USD.
On top of that FED will cease publishing of some M3 components in March and issue even more money.
This means anyone willing to cash their UST in excess of the market ability to absorb - would be issued currency by FED.
This will create unique environment of constant overliquidity and low yields.
Imagine every foreigner running away from US Bonds: They will all get cash at once! What will happen to USD?
So forget Zealand.
If for any reason there is a panic somewhere in the world - the speculators come and buy all the bonds right on the spot. Because it's cheap.
Noone will come to US for that reason - because bond prices will not fall thanks to FED!
It would be otherwise!
Fall in foreign bonds will attract speculators to sell UST bonds.
The reaction will go to FOREX.
Whether you like it or not.
It's that simple.
I completely disagree.... i think the US is not that bad as you make it.. yes the world is in poor shape.. global debt is out of control.. etc..
If anything this will reflect more in the stock market .. but the US economy and financial situation is not much worse than say that of Japan, UK, and even Canada... just imagine what would happen to mighty canadian dollar if oil went back to under $50 in the next 1-2 years..