Currencies Take a Ride on the “Sell the Euro” Bus Tour

It’s getting quite ugly out there in the investing world. Yesterday I tried to draw a line of comparison from the near collapse of Bear Stearns to the problems of the Eurozone… That line became quite a bit clearer yesterday and in the overnight markets… Let’s go to the tape!

Well… It was another day of selling the euro (EUR) and dragging other currencies along for the ride… This time, gold and Brazilian real (BRL) could no longer resist the pull/drag of the euro selling. It has actually become a rout on the single unit, as now, we’re not only dealing with the sovereign debt risk of Greece (which I still contend is not that big in the whole scheme of the Eurozone) but now, the euro is sailing into technical trading rough waters…

My charts friend sent me a note yesterday letting me know that the future for the euro is looking dark, unless a reversal can be brought about… He had this to say…

“A daily close below 1.3067 would add to bearish price momentum, targeting 1.2965, followed by the April 2009 low at 1.2888. Note that as I went home yesterday, the euro had fallen below the 1.3067 level… And in the overnight market, it has fallen below 1.30 to 1.2940…

“Note that the descending channel base for the current downtrend is located at 1.2638.

“Looking at the trading that’s gone on this week, one would have to think that the euro is nearing oversold levels, and we could see a mini-technical rally…  But, if we don’t move higher than 1.33 in the rally, it would only prompt more people to sell at these higher levels…”

Back to Chuck… Yesterday, I told you about how the European Central Bank (ECB) had relaxed its rules to help Greece… Well, the German newspapers are awash with stories on how wrong this was for the ECB to do… I agree! However, I don’t believe the ECB had any other choice… If they have designs on the Eurozone and euro remaining in place! So… The ECB was caught between the proverbial rock and a… Rock!

Outside of the Eurozone… In Norway… The Norges Bank is meeting as I write, and while before all this rout on the euro began, I would have thought the Norges Bank to be raising rates at this meeting, I now have to back off that thought a bit… I’m sure the Norges Bank has their eyes on what’s going on in the Eurozone. Now… If I were on the board of the Norges Bank, I would remain steadfast in my will to raise rates anyway! That’s the beauty of being outside the Eurozone! Norway’s central bank can make decisions, and should make decisions based on their own economic data…

But… I’m afraid that won’t happen, folks… If it does… Kudos to the Norges Bank… But I’m afraid will have to accept the fact that they just don’t have the intestinal fortitude to hike rates right now.

And in the UK they are preparing for an election, which should have the pound sterling (GBP) in a tizzy… But… Pound sterling is actually holding pretty “steady Eddie” as the election draws near, which is pretty darn strange, given the rumors of the election results… Most believe that the election will result in a “hung parliament”… That kind of news would normally deep-six a currency… You know, the uncertainty thing…

Boy… Those guys and gals down under in Australia who came up with that 40% mining profits tax sure know how to kill the goose that laid the golden egg, eh? Well, on second thought, it looks like the Aussie dollar (AUD) has been ganged up on, by the tax and the statement by the Reserve Bank of Australia (RBA) Governor that put the thought of further rates hikes in a jar for now…

I have to believe that this is all short-term, since Australia, whether they get another rate hike or not, still enjoys a very nice interest rate differential to the world… And the data there keeps printing strong… Overnight, it was April Building Approvals, which printed at +15.3% (the consensus was only for a 0.8% increase!)… That’s HUGE!

And that brings me to China… I saw yesterday that very well respected analyst, Marc Faber, said that China is going to crash in the next year… Which was strange, because right before I saw that story, Ty Keough has asked me my thoughts on China… This is what I told Ty…

I truly believe that China has gone about doing things “ahead of the curve” to prevent a meltdown… That doesn’t mean that one still can’t happen… But it also means that it might not happen either! China has gone about their business of slowing down the housing boom, but reducing the demand (they halted 3rd home buys, and put huge requirements on 2nd home buys), and they raised lending bank reserve requirements, which limits the amount of cash the bank has available to lend out… So… In my opinion, I believe the economic ship will remain at sea for China… And that will remain a feather in Australia’s cap.

See how I tied that all together? You don’t get that with amateurs! HAHAHAHAHAHA!

About Chuck Butler 105 Articles

Affiliation: EverBank

Chuck Butler is President of EverBank® World Markets and the author of the popular Daily Pfennig newsletter.

With a career in investment services and currencies extending over 35 years, Mr. Butler oversees all aspects of customer service and the trading desk for EverBank World Markets. A respected analyst of the currency market, Mr. Butler has frequently made appearances or been quoted by the national media. These include the Wall Street Journal, US News, World Report, MarketWatch, USAToday, CNNfn, Bloomberg TV, CNBC, and the Chicago Tribune.

Mr. Butler was previously the Chief International Bond Trader and Director of Risk Management for Mark Twain Bank, and has held significant positions in the investment industry since 1973.

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