Another Day On Euro Watch

I’ll keep tracking the euro again today, and updating as appropriate. I’ve just posted some stuff in the comments section of Afoe:

Looking at the newspapers the euro steadied up overnight, but seems to be on its way down again in Tokyo. As I write it is trading at $1.2194, ten minutes ago it was 1.2186.

Firstly during the night the dollar firmed:

“Against the euro, the dollar fell to $1.2211 at 9:50 a.m. in Tokyo, from $1.2179 late yesterday in New York, according to electronic currency-dealing system EBS. It was also at 108.64 yen, from 108.76. The dollar traded as high as $1.2160 per euro yesterday, the strongest since Sept. 20,”

The general consensus seems to be that the euro will rebound, since that is what the technical charts say it will do. Be these are not ‘normal’ trading circumstances and this view may not be appropriate.

Strategists at National Australia Bank hold what seems to me a reasonable perspective:

“Barring news of a sharp slowdown in the US, the euro is set to test 1.2000 and then 1.1760, the NAB strategists said, adding that the market focus is now turning to US non-farm payroll data for May to be released on Friday”.

I think we are in the hands of events, with a definite downside risk on the euro. So lets wait and see how they unfold.

Update 1: 9:30 CET. The euro is now staging a strong rally $1.2260 at the time of writing. Among other factors which may be affecting this is a speech by Dallas Fed President Richard Fisher which suggested the Fed tightening cycle may be nearly over. This is being widely interpreted as Greenspan testing the water. It is also something I have been arguing for the last couple of weeks: Europe’s weakness is now setting limits to monetary policy in the United States.

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".