Long-term bet that the EUR goes bust, which pair?

Discussion in 'Forex' started by Daal, Oct 31, 2008.

  1. Daal


    I'm thinking of putting a long-term trade that most countries will get out of the euro(starting by a few applicants 'changing' their minds about going in, like Latvia). which currency would be best to short EUR against?
  2. moarla


    the more countries going out from the euro, (like Italy hahahah) the better for the euro.

    But its not true what you say...
  3. http://www.marketoracle.co.uk/Article6659.html

    Short note from Gavekal:

    Was it just ten days ago that Peer Steinbruck railed at the US for the banking crisis and mentioned that, because of the pneumonia in the US, Europe may well have to endure a cold? Ten days later, a cold seems like wishful thinking. Instead, it looks as if the US pneumonia is inflicting a serious case of tuberculosis across Europe!

    In the past ten days, not only have we seen European governments forced to offer blanket guarantees for depositors in banks (e.g., Ireland, Greece...) but we have also witnessed a number of banks coming hat in hands to their respective governments (Hypo Real Estate, Glitnir, Fortis, Dexia, Bradford & Bingley...). Which of course begs the question of what the respective European governments can do? Some (Finland, Holland...) with overall low government debt and small budget deficits, can afford bank bail-outs. For others, whose economies may already be in a recession (e.g., Italy, Spain, Ireland...), financing large-scale bailouts may be more of a challenge. Which brings us back to a long-standing GaveKal theme, namely how the (no) Growth and Stagnation pact (see The European Divergence Trade) hampers EU governments from taking necessary action in the face of a banking crisis. Worse yet, in Europe, investors simply have no idea who the lender of last resort is, or if there is one. And, as we are finding out, this question is no longer a rhetorical question. After all, if the numbers bandied about by Der Spiegel of a necessary €100bn to recapitalize Hypo Real Estate (and that is just one bank!) are even close to the mark, where will the money come from? As we see it, there are two possible options:
    The first option is that the ECB prints money aggressively to finance a European-wide bank bailout. This could prove rather inflationary for the Old Continent as wages there tend to be very sticky. It would also entail an absolute collapse in the Euro.

    The second option would be for the ECB to tell the various European governments that the banking mess is their own problem, and that they have to deal with it. This would most likely entail a continued divergence in the yields at which European governments borrow (currently standing at post-Euro introduction record highs).
    And this brings us back to a long- standing GaveKal theme: for the Euro to survive, either a) it will have to be a structurally weak currency or b) some of the weakest links (i.e.: Portugal? Italy? Greece? Spain?...) may end up being forced out. The path of least resistance is, of course, for the Euro to a structurally weak currency.

    Which seems to be where we are heading. Indeed, despite the baffling decision by the ECB to maintain rates unchanged last Thursday, the Euro has been in a serious freefall against the US$, CHF, Yen, etc... Of course, this weakness could also be a sign that the ECB, with its stubborn unwillingness to adjust monetary policy in the face of rapidly changing events, has seriously undermined investor confidence in the Euro area. After all, 48 hours after the ECB board met, the rescue plans for both Hypo RE and Fortis were struggling. Surely, the ECB had to know that two major banks were in dire straits? Or was the ECB board drinking the same Kool-Aid as Peer Steinbruck?

    However one cuts it, it is hard to escape the conclusion that Europe is not only experiencing its own credit crunch, but will experience a nasty recession. This recession will put most European government budgets into serious deficits; foreign investors may thus start to question the logic of owning the debt of governments whose balance sheets and income statements keep on deteriorating, and whose currency is free-falling? Milton Friedman once said that the Euro would likely not survive its first major "bump in the road". We will soon find out. The great "European Divergence Trade" is no longer about theory; it is happening before our very eyes.
  4. moarla


    you know boy, curr. are not moving because interest rates changes. At the moment all the US banks and hedge funds need money to survive and have to go out from EUR - investments. So the USD rises.

  5. Weak against what?

    The currenies of fiscal responsible and money printing restricted places such as the US or the UK?:D

    These clowns keep forgetting how we are all in the same boat these days.
  6. You're implying that folks have the option to exit fiat currencies and still execute trade and commerce. Sure, gold is nice, but I can't exactly make large commercial purchases with it - hell, I can't even go buy a gallon of milk with it. It's not liquid.

    Some currencies will have to exist, it's just a fact. And when speculators and investors think there's a fundamental problem that one currency has over another, it will drop like a stone. All you have to do is take a look at Hungary or Iceland for proof.
  7. short EUR against CNY or CHF?
  8. zdreg


    in time you will. of course you have it backwards.
    1st it will be large commercial transactions which will be denominated in gold.
  9. Daal


    CNY - if it goes up a lot the oanda interest rate will change and eat your profits
    CHF - they have tons of problems too
  10. Forex


    Euro is doing really well, if anything more countries will start using it. It's the US dollar that is "has been".
    #10     Oct 31, 2008