A 'game-changer' for the euro - and a coming CHF bloc

Morgan Stanley’s currency expert and emerging markets strategist Stephen Jen has been quick to leap on the significance of the push to give the IMF extra funds to channel to Eastern Europe. Citing what he calls a “game changer” for forex markets - and for Europe in general - Jen has changed his hitherto bearish outlook on the euro and now thinks it’s more likely to see $1.40 next than $1.20 - a significant shift from the $1.10-$1.15 he has been looking for up to now.

In his first big shift on the euro since “the start of the global financial crisis”, Jen says the prospective $750bn-$850bn “IMF arsenal” will effectively bail out Eastern Europe and the likes of Austrian and other European banks with large exposure to those regional emerging markets:

The ‘EE-EMU Nexus’ has been the main reason for his consistent bearishness on the euro up to now. A massive IMF infusion would be “as much a bail-out for the likes of Austrian, Italian, German, Swiss and Swedish banks as it would be for Eastern Europe,” he notes.:


Following their meeting last Monday, the EU issued their first explicit endorsement of the proposal made by the IMF to double its resources from US$250 billion currently to US$500 billion. However, last Wednesday, US Treasury Secretary Geithner upped the ante by proposing that the IMF’s NAB/GAB be increased from the current US$50 billion to US$500 billion. Depending on whether the US$100 billion special credit line from Japan is counted, total usable IMF resources could, in the Treasury’s plan, rise from US$250 billion currently to US$750-850 billion. I am not too worried about a lack of explicit commitments from various countries at the G20 gathering this weekend, because for any country to openly endorse this idea, they will be expected to contribute. Reserves-rich EM economies will only contribute if there is a commensurate increase in their representation at the IMF, as referred to in the joint statement from the BRIC economies. I believe European countries will eventually make concessions on this issue.

http://ftalphaville.ft.com/blog/2009/03/18/53715/a-game-changer-for-the-euro-and-a-coming-chf-bloc/

 

So he's now looking for 1.40?

Considering we were at 1.47 in Dec and 1.24 a few days back and at 1.30 now, does this guy know what a game changer would look like?