John Taylor Sees Tuesday As D-Day For European Currencies, Says America Is Headed For New Recession

Tyler Durden's picture

John Taylor appeared earlier on the 2011 Reuters Investment Outlook Summit, and among various interesting things (namely another call for EUR-USD parity, and that he would "love to be owning gold right here"), he said that the US is imminently headed for another recession, a development that will boost the USD and weigh on commodities. Yet what is more interesting is that in his latest "Chairman's View", Taylor put down a specific date for the end of the recent recovery in European currencies: the date is tomorrow, the day of the Irish Budget decision, and also the day when Europe may see a coordinated effort for a bank run. Taylor also notes that "the narrowing of credit spreads between these countries and Germany is unlikely to persist for very long without further action by the European leaders." Hopefully the Eurozone meeting taking place right now will result in something more than just more hot air. For those who trade FX, Euro sov bonds, or are just generally interested in the views of the manager of the world's biggest FX hedge fund, we recreate his latest thoughts below.

The Recovery in the European Currencies Should End Tuesday
By John R Taylor/Jonathan Clark

The market took the European currencies strongly higher on Friday and used the weak US employment data as an excuse. The cycles were already calling for the recovery to last into Tuesday, although we didn’t expect the strength seen on Friday. In the near term the strength of the European currencies makes sense as it impacted the interest rate differential between Germany and the  US. It was the narrowing of the  short-term differential between November 4 and the start of last week that contributed to the weakness of the euro and the subsequent widening that contributed to its strength. However, the rebound in the single currency was also due to the belief that once again European leaders would band together to rescue any countries that lose market  confidence and are unable to float debt at reasonable interest rates. The markets should have been disappointed on Thursday that the ECB only extended its extraordinary loan program and bought Irish and Portuguese debt. The hope was the ECB would either announce a bold expansion of monetary efforts, but all they got was a slight of hand press conference and loud market noises for the ECB traders. It is confusing. Although the euro was strong, the Swiss franc was even stronger so EUR/CHF declined and this is usually a sign of risk aversion in Europe. EUR/PLN and EUR/HUF were falling most of the week and this is a sign of European optimism, but it stabilized on Friday. The Eurozone is treating the symptoms of Ireland, Spain, Portugal, Italy and Greece’s lack of competitiveness, but not the causes. This argues that the narrowing of credit spreads between these countries and Germany is unlikely to persist for very long without further action by the European leaders.

The more the European currencies rise into the high expected on Tuesday the more aggressive the next leg of the downmove will prove. The impact of bad US employment data was largely ignored by the US equity market. It won’t power the euro higher. We expect the EUR/USD to peak around 1.3470 (38.2% retracement from high in early November to the low last week). It should then turn lower and decline into the days surrounding the Christmas holiday. Provided 1.3470 holds on a closing basis the euro can still fall to new lows around 1.2625 around the end of the year.

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scratch_and_sniff's picture

Yep, shaping up to be an interesting day, must remember to have a decent breakfast.

Sudden Debt's picture

2 more days on the poneylift and...




I hate the poneylift... it streches my arms and I can't scratch my balls when they itch...

Cognitive Dissonance's picture

Bathing at least once a week might help.

Just saying.

Spartan's picture

Its going to be a hard winter in Europe, look at UK Gas Storage figures :

And the price of petrol :


How do you get all those wonderful GDP growth projections under those energy price conditions?


London Banker's picture

How do you get all those wonderful GDP growth projections under those energy price conditions?

The answer to your question is smaller houses, higher occupancy per house, public transport, and shopping on the local high streets of each village, town or neighbourhood.  I was without a car for three months recently, and didn't find it as inconvenient as expected.  Rather, I enjoyed walking to the high street, or even the next village's high street, taking the train to London, and adapting a slower, healthier pace of life.

redpill's picture

I'll be taking a few grand out in cash tomorrow just for kicks.

Temporalist's picture

RP what I want to know is who will actually wait until tomorrow if there is actually going to be a run?  If I knew there'd be a run I wouldn't wait until the day of the run to try to acccess cash.

MachoMan's picture

Aside from the fact that if there is indeed a real cash shortage and a sizeable bank run, then the markets will dry up, the sale of goods cease, and the money thus rendered temporarily worthless...

Essentially, the hope is for collapse, not to benefit from the early withdrawal.  There will be no bargains at the supermarket when people run out of money...  there will only be people running through the store grabbing everything they can before the next guy.

Reminds me of a dog chasing a truck...  ok, you caught it, now what?

redpill's picture

Pee on B of A's tire, that's what :D

Temporalist's picture

+ $110B

Who wants to be the first to own the new Benjamins with Geithners signature?

flacon's picture

Can you imagine paying your taxes with one? Geithner's (the tax-cheat) signature! Amazing!

scratch_and_sniff's picture

Anyone that can, have a look at the monthly silver chart, its f f f f ferocious.

Sudden Debt's picture

Already loaded up early to the max.

I'm expecting a call from Visa anyday now :)

A_MacLaren's picture

If your VISA is from JPM Chase, you can do a double whammy by defaulting...

Pining for the Fjords's picture

Scratch, it IS  f f f f ferocious. Gets me all happy, and that's why I am worried.  Nobody knows how the Euro bank run protest will play out Tuesday.  Will it crash the Euro, surge the dollar, and hence drop PMs?  Or will people in Europe be seeking PM's to put this cash into potentially facilitating a moonshot?  I don't think anyone knows.

So my genius analysis is, we might make money or we might lose money.  I should be on CNBC.

Sudden Debt's picture

It will be a dud.

Going cash on your entire account is nuts. Also, I have a daily limit on my cards and for large withdrawls I need to warn my bank in advance as do almost all people.

And what will you do with all the cash? deposit it in another bank and getting robbed underway?

All that hustle for what?

Pining for the Fjords's picture

You are probably right SD.  There is at least a possibility, however, of things getting interesting.  You never know where the tipping point is with events like this. 

Sudden Debt's picture

it would require teamspirit, and after years of working with large groups I just know it won't happen.

These days you need a blowtorch and a scalpel to force people to work together and act as one.

scratch_and_sniff's picture

The straight forward risk-on/risk-off play is out of kilter for the moment mate, markets are more or less themeless at the moment. The buck is having an excellent day at the moment, and yet silver and gold are both still putting in a decent performance(been like that for a while now), so as far as the dollar being a threat to your positions, i wouldn’t worry too much about it. With regards to tomorrow, if we start getting the kind of headlines we should (i.e. Ireland reneges on its obligations), then the only way is up for PM's IMO, regardless of what the dollar does.

unununium's picture

Ag is the ultimate boner chart.

dehdhed's picture

it would seem to me that if everyone withdrew euros out of banks that the demand for euros would go up and not down. 

gwar5's picture

I don't feel like the US ever really got out of the old recession.

Euro/USD parity? Because we own them?

redpill's picture

No, because their currency union has an earlier expiration date than the nuclear-powered (soon-to-be-no-longer) global reserve currency.

koeleköpke's picture

A united Europe does not and will not exist, there are only european countries. The euro politicians only prefer to go the wedding but not to the funeral. Europe is old and sick.

Temporalist's picture

And the U.S. is young and stupid and doesn't learn from past mistakes.

RafterManFMJ's picture

He's got to make his own mistakes
And learn to mend the mess he makes
He's old enough to know what's right
But young enough not to choose it

He's noble enough to win the world
But weak enough to lose it
He's a new world man

Cognitive Dissonance's picture

I'm not so worried about tomorrow because the bank's don't need to balance their books until the end of the day. What about The Day After Tomorrow? Will they even be able to open up if they are in the red?

Oh, wait a minute. That's right. The Fed will bail out every bank in the world The Day After Tomorrow.

SheepDog-One's picture

Well if everyone is expecting a run on banks tomorrow, then shouldnt everyone actually run on the banks TODAY?

MachoMan's picture

What spoils would getting cash out early entail?  You get to pay fixed/recurring costs while others default and the value of your debt laden assets decrease beyond your level to sustain them?  Are your dollars going to go farther than the next guy who is loading up his cart with bread and milk and just flying out the door without paying?  Is a farmer going to sell his land to you for that cash?  Someone part with their gold?

Everything not already converted from the ether is subject to instant and total devaluation.  This goes for today, tomorrow, and in perpetuity.

Arius's picture

i suppose the best scheme is to start a bank, go broke and get bailouts...

Dan The Man's picture


Irish will have a 23% sales tax?  Sheesh!

flacon's picture

Punished for spending money.

Punished for saving money.

Punished for earning money.


What a F'd up world. 

Hubbs's picture

On CNBC right know Kopstin v Burnett. The battle of the beaks.


Man,  Kostin in profile looks like the guy in Despicable Me.


What a line he is shpeeling.

SheepDog-One's picture

Battle of the

RobotTrader's picture

As of today, bank stocks are outperforming.  I doubt we see any weakness until we see underperformance from this sector.

TonyV's picture

FAS is down and so is C, JPM and BAC

Cdad's picture

Right...almost forgot about Tuesday.  I was wondering why our market was behaving exactly like a zombie today.  It would seem that almost all bids and asks today are being pulled as it stumbles forward slowly towards...I don't know.  POMO?


RobotTrader's picture

IRE and AIB, the two worst bank stocks on the planet, are up over 3% today

Temporalist's picture

Just shows how incredibly stupid people are.  The same people buying AIG as it plunged.  The same people buying bonds in the biggest bubble in the history of the world.  The bond bubble will be like the Hindenburg crashing into the Superbowl if it was raining gasoline.

Oh regional Indian's picture

Hey Temporalist, you'd asked me on the Gandhi comment who I thought was A-Ok.

Viktor Schauberger.

Google him, the definitive humanist/naturalist/innovator of the last century.

Robbed and then killed off by the Americans (Texans as it turns out), of course.

He was the man of the century. 


Oh regional Indian's picture

Sorry Rodent, man was a monster in my eyes.

Greater production causes population booms, not vice-versa.

Also, The Nobel is a clear give-away of what dominant thesis is expected to prevail.

And the father of the green revolution was actually the father of th egene revolution. It was changed because it sounded better. He was funded by the Rothschilds.

Sad but true.

Farms should have stayed small.


Double down's picture

I raise you: buyers of bond insurers

Temporalist's picture

If I were gambling I'd fold...but since we're not we can both push all-in just like the Fed and Govt has on RE and mortgages.

unununium's picture

ACA Capital.  That had to be the biggest steaming pile of shit ever traded.

Vampyroteuthis infernalis's picture

Setting up for a colossal short tomorrow!