Well over a year ago, before the Euro began it's surge to 1.50, I was predicting a tremendous cataclysm in the single currency. In a report published through Agora Financial, I outlined the problems inherent in the euro structure, and explained why it took so long for them to come to light. But that that there were cracks in the dam, and the water wasn't going to hold much longer.
Since the first of the year we have been selling the euro at every opportunity, and making a boatload doing it. But the question may be, why is the euro selling off over all this news about Greece's debt, but the US is not being sold off because of its debt. Frankly, we are in worse shape here, than they are over there.
check out www.usdebtclock.org/index.html (Better keep a barf bag handy!)
For instance, Greece only comprises about 3% of the GDP for the Eurozone. But the state of California, which is just as bankrupt as Greece, represents 8% of our total GDP. So who has the bigger problem? Also we have several other states that are equally in trouble. They, like Greece, Spain, Portugal, Ireland and Italy, represent a drain on the US, not an asset. But for some reason, nobody is really talking about that.
But a big part of why the dollar is appreciating while the euro is getting trashed, is simply the mechanics of the trade. The dollar index is a weighted measurement of a number of currencies versus the dollar. But, guess which one carries the most amount of weight...the EURO! Surprise! In the whole basket of currencies, the euro comprises about 40%!
That's why, up until now, a lot of currency folks would refer to the euro as the anti-dollar. If the dollar was going up, the euro was going down and vice versa. They would always move in tandem. But not so much right now. The dollar is advancing against the euro because of the overweight nature of the currency basket, but it is not really advancing against other currencies. So we're seeing a real disconnect here. Who knows where it will end. The euro was the counter part to the dollar, and the place where people stored their money for safety. But if it is no longer a safe place, what currency will stand up to the dollar? The Yuan? Quite possibly, but not for some time to come. China has a lot of internal housekeeping to tend to first.
But for now, we will continue to look at the euro for a trading pair. Want to ride it all the way down to parity? It'll make you a lot of money. I'll show you how!
Contact me at bill@thefxtradingmasters.com
Happy Trading!
Bill
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