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Because Parity Is So May 2010: BNP Now Sees EURUSD At 0.98 By Mid 2011

Tyler Durden's picture





 

When the ECB said recently that a slide toward parity would be tantamount to admitting defeat for the euro and the eurozone, we took it somewhat seriously. Which is why we were rather surprised to see that the biggest French bank, and by implication, organization which would suffer massively should the eurozone implode, is out with a EURUSD forecast that goes even beyond parity, and bottoms out at 0.98 by Q2 2011. As we have noted before, it is the very same  European banks who are most interested in a destabilized euro, as it would merely entail trillion after trillion in ECB bailouts, providing quarterly bonus make whole packets for all bankers involved. So, without further ado, here is BNP's thesis, which just as easily could have come from Evans-Pritchard: "Now we are convinced that EURUSD will have to remain weaker for longer and we expect it to drift to 0.97 in Q3 2011. The competitive and wealth gap within EMU will have to be closed to rescue the European project. Peripheral Europe will be exposed to a significant deflationary shock and asset transfers from core European countries will be required to keep these countries and its financial system afloat." It kinda makes us wonder whether the ECB may have been lying to us all this time.

Full BNP Note:

BNPP projects EURUSD below Parity

Despite this week’s rebound we have revised our EURUSD projections lower once  again. So far, we had expected EURUSD to hit parity in Q1 2011, followed by a gradual rebound of the EUR. Now we are convinced that EURUSD will have to remain weaker for longer and we expect it to drift to 0.97 in Q3 2011. The  competitive and  wealth gap within EMU will have to be closed to rescue the European project. Peripheral Europe will be exposed to a significant deflationary shock and asset transfers from core European countries will be required to keep these countries and its financial system afloat. A weak EUR will help Europe generate the required income to deal with the financial consequences of the crisis. Moreover, the ECB will have to keep interest rates low to deal with the deflationary consequences of closing the inner EMU competitive gap. Consequently, there will be little incentive to place funds in Euroland.

In fact, we expect the ECB to become a global liquidity provider. As long as Europe does not develop a major incident leading to a domino like knock on effect within the financial sector we expect supportive global liquidity conditions to provide asset price support. The over leveraged G-4 economies need to reduce private and public debt levels in order to maintain access to capital markets. Seeing large parts of Asia and the Middle East booming and even Africa reaccelerating its economic expansion will allow the G-4 to rebalance without risking a double dip. Our main scenario is based on such a benign outcome. G-4 currency liquidity will remain cheap and with Asian and other emerging economies steaming ahead, expanding their domestic economies, demand for raw materials will remain high. Yielding commodity currencies will attract foreign funds keeping these currencies supported. Hence, we have revised our commodity currency projection for 2011 higher. We expect USDCAD to decline to 0.87 and AUDUSD and NZDUSD to reach 0.97 and 0.78 respectively in Q3 2011.

In Japan, the new Kan government has put fiscal austerity on the agenda and the BOJ will continue to print money suggesting JPY weakness. A lot of this JPY weakness will materialise against other Asian currencies and the commodity block, while JPY weakness is unlikely to develop against the EUR or GBP. The USD stands in between the strengthening commodity currency block and the weak EUR, suggesting USDJPY will strengthen somewhat. We expect the FED to keep interest rates at current levels well into the year 2012, keeping the US curve steeper when compared to earlier projections. Hence, the USD will be less attractive for US based investors compared to our previous assumptions. Nonetheless, USDJPY downward revisions are minimal and do not change the profile of our call.

Meanwhile, we expect the CHF to develop significant appreciation. The SNB has recognised that its CHF weakening intervention strategy in an environment of positive CHF rate expectations is self defeating.

 


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Thu, 06/17/2010 - 19:41 | Link to Comment Rainman
Rainman's picture

Now there's a big dose of Euro bearish.......and a good incentive for development of new sovereign currencies on the cheap, circa Hjalmar Schacht. 

Thu, 06/17/2010 - 19:41 | Link to Comment Mitchman
Mitchman's picture

So you are saying that they want this to be a self-fulfilling prophecy?  I think the German voters may have some different news for them.

Thu, 06/17/2010 - 19:44 | Link to Comment Hephasteus
Hephasteus's picture

Too many people bought gold in europe. We'll have to notch her down a bit further.

Thu, 06/17/2010 - 20:07 | Link to Comment walküre
walküre's picture

The Euro will be at least partially gold backed.

Mark my words.

Fri, 06/18/2010 - 06:04 | Link to Comment TBT or not TBT
TBT or not TBT's picture

Sure, Europe and the Euro having been scrupulously reality based so far, right?

Thu, 06/17/2010 - 20:06 | Link to Comment walküre
walküre's picture

BNP has major short positions in the Euro.

This has nothing to do with politics or with value.

BNP is shorting the Euro and bashing it.

Did they take a page from Soros' playbook? I think so.

Merkel, my favorite European politician and LEADER has put the short sales ban and the CDO ban through for a good reason. Bashers like BNP are not supposed to benefit on the backs of mainly German taxpayers.

Look at the debt that French banks are holding across the Club Med.

I can't wait for the French to go back to a 40 hour work week. The lines and lines of tractors and trucks blocking the Parisian economy.

Anyone here remember that the French had to devalue their currency at least once in the last century past WW2?

Thu, 06/17/2010 - 20:56 | Link to Comment desgust
desgust's picture

I wish you would live in Ferkel s Germany. You have no idea what you are speaking of.

Thu, 06/17/2010 - 20:22 | Link to Comment nuinut
nuinut's picture

Europeans are cutting defense budgets. Quote:

 

On June 8, the Washington Post ran a story claiming that the European members of NATO were about to embark on their deepest cuts in military spending since the end of the cold war. On June 7, the German government stated that they were seriously considering cutting their military personnel by 40,000 or 16 percent. The German defence minister has publicly stated that a 100,000 or 40 percent reduction in the present complement of 250,000 might be necessary.
In Britain, serious consideration is being given to a 10-15 percent cut in military spending over the next six years. France and Italy are also talking about big cuts in military spending.
US Defence Secretary Robert Gates is naturally aghast at this talk. He has been warning of a “crisis” confronting NATO ever since February, the crisis being caused by the non-US members of the alliance “not pulling their weight”. Now, Europe seems determined to pull even less of it.

 

quoted from 'The Privateer', #655, June 2010.

 

Ceasing with 'spending for growth'. Keynesianism is dead. CLICK HERE. They are pulling out of the Ponzi, folks.

They could care less if Euro drops all the way to 0.86, where it was originally floated.

Check this interview: mp3 file here

Particularly the last portion of the interview.

Europeans are adjusting their ballast, battening the hatches etc for the coming storm.

Short term moves in the Euro mean squat, except that they will be much better positioned for the crisis.

 

What the hell are Bennie and Timmay doing?

Thu, 06/17/2010 - 20:32 | Link to Comment walküre
walküre's picture

Austerity will be good for the common currency as it should.

Anyone trying to explain that more spending and more printing would solidify the Euro is drinking the wrong kool aid.

Now try that in the US. Try and downsize the government military complex. Good luck. Won't happen without an ensuing revolt. Any nation that's tried to accommodate thousands of ex military has usually gone down the drain.

The American experiment is nothing new. It's another in a long line of failed empires. The US is on its deathbed.

The GOM was the last nail in the coffin. Similar to the lead poisoning that is partially blamed for the fall of Rome.

Thu, 06/17/2010 - 22:22 | Link to Comment alex_g
alex_g's picture

Euro was originally floated at US1.18, not .86

Thu, 06/17/2010 - 20:20 | Link to Comment 115spider
115spider's picture

BNP's investment arm is in London (60% top-rate tax in France). Chances are the English guy that wrote the piece couldnt give a toss about the EU project anyway

As a non-voting German Taxpayer, the sooner this goes tits up and we get the DM back the better - they plan to increase the VAT here on food to 19%....

 

Thu, 06/17/2010 - 20:26 | Link to Comment walküre
walküre's picture

19% VAT on food that is at least strictly monitored and not genetically modified as it is in the US.

40 millions of Americans are living on food stamps. They don't have enough income to buy Twinkies and Wonder Bread.

The US economy cannot simply "shake" an entire region (Gulf of Mexico) being gutted over several years because of a massive never ending oil spill.

Club Med may be broke, but at least the Med is clean and liveable.

Europeans have savings. Europeans are NOT indebted beyond redemption.

Don't even get me started on the level of sophistication that Europeans enjoy.

Europe looks better every day.

 

Fri, 06/18/2010 - 06:09 | Link to Comment TBT or not TBT
TBT or not TBT's picture

"Don't even get me started on the level of sophistication that Europeans enjoy."

LOL!    No, please.  Do go ahead and start detailing the "the level of sophistication that Europeans enjoy"....mindful that lots of readers here know the old continent all too well.

Thu, 06/17/2010 - 20:50 | Link to Comment desgust
desgust's picture

+1!!! Damned Ferkel!

Thu, 06/17/2010 - 20:26 | Link to Comment Muir
Muir's picture

Damn! And I bought my ZH t-shirt today!

bummer

 

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Thu, 06/17/2010 - 20:28 | Link to Comment Muir
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Lucky for Marla that I ain't scared of no namby-pamby deflation.

Thu, 06/17/2010 - 22:08 | Link to Comment paladin
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all paper money is a derivative of the USA dollar after Benton Woods

LOL....LOL....LOL

 

let me know haw this works out for you....LOL

Fri, 06/18/2010 - 00:14 | Link to Comment jimmyjames
jimmyjames's picture
by walküre
on Thu, 06/17/2010 - 18:07
#420520

 

The Euro will be at least partially gold backed.

Mark my words.

***************************************

The first currency to have Gold backing-will kill em all-

Then comes the rush into Gold by all Central Banks--

Sell some into the massive Commercial squeeze that ensues-

My dream trade-come true-

Do NOT follow this link or you will be banned from the site!