John Taylor's Latest Take On Schrodinger's Currency: Sees EURUSD Going To Either 1.2650 Or 1.3625

The US and Eurozone Are Pursuing Different Policies
By John R Taylor/Jonathan Clark, FX Concepts

For member countries of the euro, the punishment for high deficits and attracting the attention of the financial markets is severe. Not only are countries like Greece and Ireland forced to adopt extremely austere budgets, but the bailout packages mean they are locked into paying very high interest rates for years ahead. Austerity in Europe means economic growth will be lower than would  have otherwise been the case and euro interest rates should remain relatively low. The US is also faced with rising budget deficits, but the financial markets are not punishing the US for its fiscally lax policies and loose monetary policy. Now, President Obama has agreed to extend the Bush tax cuts for another two years for all taxpayers, but only by getting concessions to extend unemployment benefits and a 1-year 2% social security tax holiday. The result of this political compromise is a rise of US interest rates versus other countries and this is positive for the dollar. For its fiscal play, the US has gone from loose to tight.

The chart shows the tight correlation between EUR/USD and the interest rate differential between Germany and the US. When the interest rate differential widens the euro strengthens and when it narrows the euro declines. There can be lags at times as occurred in early August when the differential narrowed and the euro peaked four days later, but most of the times the lags are shorter. The market can ignore small movements as occurred twice in September (small blue arrows). However, if the US pursues expansionary policies and the Eurozone doesn’t, this should cause European interest rates to fall versus those in the US and the euro should also decline.

During the past two days the differential has narrowed between the US and Germany, but the euro has yet to show much weakness. The shorter cycles on EUR/USD appear quite clear to us and call for euro weakness into Thursday. There is a chance the  euro has just formed a significant peak and if it closes below the strong support at 1.3030 it has begun a downtrend lasting into the end of the week of December 27 and will fall to 1.2650, signaling it is headed lower into April or May. If the next few days lack much weakness then the euro will turn higher and a close above 1.3375 signals it is headed higher into the middle of next week and will rally to the 1.3625 area. The movement in interest rates will be a major determinant of which course the currencies take.

Comments

[Sudden Debt]

NOW THAT'S WHAT I CALL A FORECAST!

between 1.2650 and 1.3625...

That's like saying to a woman who is pregnant after a Echo that:

It might be a boy or it might be a girl...

[Max Hunter]

Yeah.. Kinda like a 14 day weather forcast.. About as useful as a screen door on a submarine..

[Minion]

Exactly what I was thinking.  Gotta leave the forecast loose so it can never be discredited......

I say it's going to 1.45+  The latest reversal is just two of five.

I'm sure PRECHTER & Co. are calling for Euro to Zero, lol.

[hugovanderbubble]

Sell off coming,

SP 1.118 main target....before any major movement. (Bearish Volume Divergence -As Equity Flows recieves net outflows and V.W.A.P is 5% down vs current price from 1st september till today.

EURUSD 1.26, Spain default close to us...The scam is ending¡Then EURUSD 0.91 EUROSCAM TIC TAC....Portugal and Belgium Default too.

[hugovanderbubble]

DONT HOLD EUROS its an order.

Euro land is the biggest farce ever done

[Rama V]

Schroedinger (Dead Cat) Currency - Always uncertain of the value but there is always one last bounce left.

[John McCloy]

Now that is hedging your bets lol

[RobotTrader]

KRE at the HOD

Banks are being bought with the utmost urgency.

[RobotTrader]

United Rentals, an forklift and crane rental outfit, is now making 52-week highs.

Meanwhile, the economy implodes...

LOL....

[thetruth]

i see gold between 1300 and 1500 over the next couple of days

[Cdad]

You know, I'm not a currency trader, but this one seems pretty simple to me...at least in the near term.  That three day rally that started last week was clearly the manipulation dejour [along with oil] to push the S&P pig up the hill.  That said, and looking at how quickly that stupid Euro rally is being repealed, the easy money would seem to be on his downside call.  EUO, I say.

And robo, as for the banks, you know exactly what is happening there.  That is the fourth down Hail Mary, and aside from noting the technical S&P reason as to why the banks would rally, the demise of the one day wonder bank push seems preordained.  It will end with a dropped pass.  There is NO fundamental reason for anyone to buy banks...save for maybe those whose CEO's have recently been prosecuted and jailed.  Their financial statements last quarter were so absurd that I believe this group will be permanently crippled. 

[scratch_and_sniff]

What ever happened to the 1.3480 resistance he was touting the other day? When he mentioned that tuesday was going to be the make or break point for the Euro, alarm bells started to ring. More than likely he was selling heavily yesterday, duh. Even though we had a fairly tidy slope, there was plenty of bid interest most of the way down...so hardly a capitulation, and another major leg down at this moment would send terminal signals for the Euro… some more backing and filling required perhaps. Last weeks action gave me a minor bullish reversal on my system(negated at close below 1.315, adding to at close above 1.325 if 1.315 not taken out before friday), and even though I am still bearish, the bids are getting noticeably thicker.

I don’t hold anything against the guy, and even though Tuesday could have turned into a bloodbath considering even the broader technical picture, calling for a specific day that becomes a game changer is truly putting your balls on the chopping board.

[Orly]

"Whatever happened" was US ten-year bond prices imploding.

Everything changes.

[Island_Dweller]

This Irish man drops a few f-bombs as he explains the banking crisis in a short video

http://www.youtube.com/watch?v=Pu3IT1kGavE&feature=player_embedded

[Village Idiot]

...and fuck whatever.