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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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Mon, 12/06/2010 - 10:58 | 781869 H. Perowne
H. Perowne's picture

Erin Go Broke?

Mon, 12/06/2010 - 11:03 | 781876 scratch_and_sniff
scratch_and_sniff's picture

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

Mon, 12/06/2010 - 11:07 | 781878 Sudden Debt
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...

Mon, 12/06/2010 - 11:29 | 781970 Cognitive Dissonance
Cognitive Dissonance's picture

Bathing at least once a week might help.

Just saying.

Mon, 12/06/2010 - 11:04 | 781880 Spartan
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?


Mon, 12/06/2010 - 12:22 | 782136 London Banker
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.

Mon, 12/06/2010 - 11:06 | 781883 redpill
redpill's picture

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

Mon, 12/06/2010 - 11:30 | 781971 Temporalist
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.

Mon, 12/06/2010 - 12:04 | 782082 MachoMan
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?

Mon, 12/06/2010 - 15:22 | 782915 redpill
redpill's picture

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

Mon, 12/06/2010 - 15:17 | 782898 Temporalist
Temporalist's picture

+ $110B

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

Mon, 12/06/2010 - 15:54 | 783022 flacon
flacon's picture

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

Mon, 12/06/2010 - 11:06 | 781884 scratch_and_sniff
scratch_and_sniff's picture

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

Mon, 12/06/2010 - 11:08 | 781889 Sudden Debt
Sudden Debt's picture

Already loaded up early to the max.

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

Mon, 12/06/2010 - 11:47 | 782017 A_MacLaren
A_MacLaren's picture

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

Mon, 12/06/2010 - 11:24 | 781946 Pining for the ...
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.

Mon, 12/06/2010 - 11:31 | 781973 Sudden Debt
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?

Mon, 12/06/2010 - 11:38 | 781992 Pining for the ...
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. 

Mon, 12/06/2010 - 11:58 | 782053 Sudden Debt
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.

Mon, 12/06/2010 - 11:56 | 782046 scratch_and_sniff
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.

Mon, 12/06/2010 - 19:11 | 783831 unununium
unununium's picture

Ag is the ultimate boner chart.

Mon, 12/06/2010 - 11:06 | 781885 dehdhed
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. 

Mon, 12/06/2010 - 11:09 | 781891 gwar5
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?

Mon, 12/06/2010 - 11:18 | 781922 redpill
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.

Mon, 12/06/2010 - 11:10 | 781895 koeleköpke
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.

Mon, 12/06/2010 - 11:31 | 781975 Temporalist
Temporalist's picture

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

Mon, 12/06/2010 - 14:41 | 782775 RafterManFMJ
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

Mon, 12/06/2010 - 11:12 | 781898 Cognitive Dissonance
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.

Mon, 12/06/2010 - 11:24 | 781952 SheepDog-One
SheepDog-One's picture

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

Mon, 12/06/2010 - 12:12 | 782102 MachoMan
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.

Mon, 12/06/2010 - 11:59 | 782058 Arius
Arius's picture

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

Mon, 12/06/2010 - 11:11 | 781899 Dan The Man
Dan The Man's picture


Irish will have a 23% sales tax?  Sheesh!

Mon, 12/06/2010 - 16:00 | 783042 flacon
flacon's picture

Punished for spending money.

Punished for saving money.

Punished for earning money.


What a F'd up world. 

Mon, 12/06/2010 - 16:45 | 783187 frenchie
frenchie's picture

what else...

Mon, 12/06/2010 - 11:12 | 781900 Hubbs
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.

Mon, 12/06/2010 - 11:28 | 781969 SheepDog-One
SheepDog-One's picture

Battle of the

Mon, 12/06/2010 - 11:13 | 781901 RobotTrader
RobotTrader's picture

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

Mon, 12/06/2010 - 13:11 | 782371 TonyV
TonyV's picture

FAS is down and so is C, JPM and BAC

Mon, 12/06/2010 - 11:14 | 781908 Cdad
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?


Mon, 12/06/2010 - 11:19 | 781928 RobotTrader
RobotTrader's picture

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

Mon, 12/06/2010 - 11:34 | 781986 Temporalist
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.

Mon, 12/06/2010 - 11:47 | 782018 Oh regional Indian
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. 


Mon, 12/06/2010 - 12:35 | 782187 Oh regional Indian
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.


Mon, 12/06/2010 - 12:49 | 782254 Double down
Double down's picture

I raise you: buyers of bond insurers

Mon, 12/06/2010 - 15:20 | 782910 Temporalist
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.

Mon, 12/06/2010 - 19:13 | 783847 unununium
unununium's picture

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

Mon, 12/06/2010 - 11:44 | 782006 SwingForce
SwingForce's picture

Swan Song.

Mon, 12/06/2010 - 11:44 | 782007 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Setting up for a colossal short tomorrow!

Mon, 12/06/2010 - 12:01 | 782063 Sudden Debt
Sudden Debt's picture

and a massive shortsqueeze the day after.

Mon, 12/06/2010 - 12:00 | 782059 Sudden Debt
Sudden Debt's picture

and BAC is down 1%.... go figure.... :)

Mon, 12/06/2010 - 12:00 | 782065 SheepDog-One
SheepDog-One's picture

Up 3% means the stock is up .2 cents.

Mon, 12/06/2010 - 11:20 | 781938 Mad Mad Woman
Mad Mad Woman's picture

Headed for a "new recession"? We've never left the old one. In fact, we've slid into a depression.

I think this will be a very interesting week in politics AND the markets. Stay tuned.......

Mon, 12/06/2010 - 16:04 | 783049 flacon
flacon's picture

The depression began on December 23rd, 1913. We've been in it ever since. 

Mon, 12/06/2010 - 11:22 | 781943 Oh regional Indian
Oh regional Indian's picture

Trouble tuesday.

Euro's going,

The Dollar's way.


Parity, Equality, Fraternity.

Not good for proles of any form. 

Merkel will play spoiler for Grrrrmoney, against the EU. She's a stasi lady in trouble right now.

Fascinating. Another tick tick kind of time.

Tick tick...



Mon, 12/06/2010 - 11:30 | 781972 DosZap
DosZap's picture

Headed for antoher Recession, he's on crack.

We have been in a Depression since '08, if the FED & Congress had not been sending unlimited UE Bennies,millions would be penniless.

And on the streets.

Dumb twat.

Mon, 12/06/2010 - 15:21 | 781988 Temporalist
Temporalist's picture

I think he's using banker/politico speech so that they understand.

Mon, 12/06/2010 - 11:53 | 782035 ydderf1950
ydderf1950's picture

and 43million in soup lines oops on snap

Mon, 12/06/2010 - 11:33 | 781981 SheepDog-One
SheepDog-One's picture

'Headed into another recession' at this point means 'headed into world war' because theyre all out of answers at this point.

Mon, 12/06/2010 - 11:34 | 781984 Cash_is_Trash
Cash_is_Trash's picture

don't go anywhere.. keep your physical gold and silver.

I hope this Pan-Euro bankrun ruins the euro-dream

Mon, 12/06/2010 - 12:05 | 782074 espirit
espirit's picture

For once, I would like to receive positive acknowledgement (other than from ZHer's), that PM's just take more diluted fiat to purchase.

It seems the dumb are dumbfounded by this simple concept.

Mon, 12/06/2010 - 11:37 | 781990 Gimp
Gimp's picture

New  recession? Still in phase one of a depression.

Just disguised it with massive printing and SNAP cards for all.

Mon, 12/06/2010 - 11:57 | 782048 Caveman93
Caveman93's picture

Took out $2,000.00 in cash Friday; small bills..wanted to beat the crowds. ;)

Mon, 12/06/2010 - 12:02 | 782068 Sudden Debt
Sudden Debt's picture

planning a trip to the local stripjoint I see :)

Mon, 12/06/2010 - 12:18 | 782124 MachoMan
MachoMan's picture

I routinely take out relatively large cash amounts in small bills and every time (literally) I get looked at like I'm heading to the titty bar.  You don't want hundreds?  No!  I said twenties.  *gives stare like he/she knows what I'm doing with the money* "Headed to tunica?" No...  "err, memphis?" *grin on face* No...  *defeated look on face* "would you like a bank bag for that?" Yes please.

Mon, 12/06/2010 - 12:45 | 782231 bigdad06
bigdad06's picture

Well if D-Day is tomorrow then Judgement Day shouldn't be far behind. Oh that's right, it's the 11th! LOL!

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