EURUSD longer term thinking

Discussion in 'Forex' started by dhpar, Sep 29, 2008.

  1. dhpar


    where do we go?

    in the past few days we can hear from everywhere a renewed bullish optimism on USD. some reports even suggest that we are going to see intervention in favor of USD.
    i have hard times to understand that - and for what it is worth so does the gold. my main arguments are:

    A. with a stronger dollar the trade balance will get worsening again in times when capital account will be under considerable pressure due to bailouts.
    B. rates are low.
    C. economy in europe will get much worse but external financing needs are minimal while will likely cut only a bit (if at all)

    please feel to chime in - i will be glad to hear some ideas...

    note: please avoid short term trade ideas based on technicals - there are other threads for this. i do not trade eurusd actively.
  2. I think there is a relief rally waiting to happen in EURUSD. On the other hand, the US continues to spend more than they earn, and expect the world to support this - which is unsustainable. The UK is suffering badly now, while Germany has more legs to stand on and a larger and more robust economy.

    The Euro will fare relatively well in the dwindling of the USD, even though the US problems are spilling over into other economies. Also, some commodity currencies might fare well - unless they are too heavily reliant on US trade. The AUD is not very strong right now, but I think it will do pretty OK in the long run.

    Intervention will no doubt happen for the USD, and those actions will be messy and bloody in my view. In the long run, I wonder if it can shore up the faltering confidence in the USD and US economy at all. The housing crisis will continue to cement itself on the minds of every economist as the foundation being ground down as the crisis deepens.

    The EUR is more composited with some of the newer member economies keeping growth relatively good in the European Union. The fiscal conservativeness of the EU in comparison to the US will also be promoting better trust than the failing US economy, so perceptions will be more favourable for using the Euro and seeing it as more reliable than the USD over the long run.

    What has happened is an erosion of trust in the USD and US economy - and it will get much worse before it starts picking up again. We will see the effects beyond 2010 in my opinion. In 2009 we will see new EURUSD all time highs.
  3. It is all about supply and demand. Money frozen in toxic waste reduces supply. Fed money printing increases supply. Foreigners clamoring to get into safe US treasuries increase demand. Foreigners dumping bonds and repatriating their funds reflects reduced demand. Try to determine the net effect of all the above and you have a rough framework to work with.