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Juncker Warns EUR Exchange Rate "Dangerously High", Or Europe Wants Its Cake And To Eat It Too

Tyler Durden's picture





 

We have long been discussing the fundamental paradox dichotomy that Europe finds itself in, where on one hand the continent needs ECB intervention to keep it together with indirect debt monetization and current account deficit funding via TARGET2, yet on ther other, where ECB intervention always ends up pushing the EUR higher relative to its FX peers as the natural trendline of the artificial currency is to its natural long-term price level: 0.00. The problem of course, is that the higher the EUR goes, the weaker German exports become, and as we observed just this morning, the faster Germany's collapse into recession happens. Sure enough, Europe finally figured out what has been obvious to virtually anyone with half a brain for many months:

  • JUNCKER SAYS EURO EXCHANGE RATE 'DANGEROUSLY HIGH'

That's great, and we agree with Juncker for once, but there is major problem with this: the lower the EUR goes, the greater the redenomination risk. Sorry Europe - that's just the way it is. The second the EUR goes back to the mid and lower 1.20s (or below) PIIGS bonds will go bidless, liquidity will go bump in the night, currency swaps will get all banged up, and "redenomination risk", or fear of currency implosion, will once again rear its ugly head. But at least German exports, and thus German GDP, and thus the only viable economy in Europe, will prosper.

Sure enough, the EURUSD plunges the second this latest vberbal intervention hits:

In other words, while Europe wants its cake and to eat it too, it can't have it both ways. Unless of course, the ECB is in regime change mode, and instead of pushing the EUR higher going forward, it will send it lower, only for Mario Draghi come out and tell everyone to "not short the Euro, beeleeevee me."

What is worse is that with all correlation algos pegging the ES to the EURUSD, a shift out of Europe will mean lower risk asset prices in the US, and more easing out of the Fed, which in turn will push the EUR once again much higher.

And so on.

Oh, aren't currency wars so much fun, especially since Mario Draghi may now want to reassess his advice from last July, that "it's pointless to go short on the euro." So... is it pointful now?

Last, but never least, because we can't say it enough, Tom Stolper FTW.

 


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Tue, 01/15/2013 - 15:04 | Link to Comment csmith
csmith's picture

Bombed by a Juncker!!!

Tue, 01/15/2013 - 15:15 | Link to Comment LeisureSmith
LeisureSmith's picture

The famous Fokker Juncker dive-bomber. Target2 acquired....dive!

Tue, 01/15/2013 - 15:18 | Link to Comment ACP
ACP's picture

This just means the Fed's "Other Assets" curve steepens from an 80 degree angle to an 85 degree angle.

Tue, 01/15/2013 - 15:55 | Link to Comment Stoploss
Stoploss's picture

Hey Angie, that's what a straight jacket feels like, the more you struggle, the tighter it gets!!

LOLOL!!!

Tue, 01/15/2013 - 15:50 | Link to Comment Orly
Orly's picture

I wish I knew a way to write that horrific squeal they give in their downward approach.  That post needs a sound effect.

:D

Tue, 01/15/2013 - 16:20 | Link to Comment kaiserhoff
kaiserhoff's picture

Paging WB7, artiste in residence....

Tue, 01/15/2013 - 17:07 | Link to Comment mercenaryomics
mercenaryomics's picture

Good luck on writing that out. 

Tue, 01/15/2013 - 15:29 | Link to Comment Cap Matifou
Cap Matifou's picture

One of the biggest slimeballs in the new blue USSR.

In a frank moment, Jean-Claude Juncker, Luxembourg's prime minister, once described the EU's "system". "We decide on something, leave it lying around and wait and see what happens," he explained. "If no one kicks up a fuss, because most people don't understand what has been decided, we continue step by step until there is no turning back."

http://www.economist.com/node/1325309

 

Tue, 01/15/2013 - 15:05 | Link to Comment michiganmaven
michiganmaven's picture

Wow.. good for a .01% sell off... GO BULLS !! YAY BERNANKE !! AWESOME RAH RAH RAH !

Tue, 01/15/2013 - 15:06 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

"Oh, aren't currency wars so much fun."

I have not yet begun to fight. - John Paul Jones Ben Bernanke

Tue, 01/15/2013 - 16:15 | Link to Comment bank guy in Brussels
bank guy in Brussels's picture

Currency wars inside the EU are getting underway ... one of the Mediterranean countries will get bold and break the euro death-grip, fracturing the euro-zone by mid-2014

As Ambrose Evans-Pritchard has asked of Comrade José Manuel Barroso, the former Maoist revolutionary now running the EU ... If he was 40 years younger, wouldn't he be in the streets of Lisbon today, protesting against the EU and demanding that Portugal leave the euro, for the sake of the Portuguese working class?

---

The only thing that will stop euro break-up, is if Germany agrees to go inflationist and print money in order to save out the teetering German banks insurers and pension funds. 25% chance of this I think, tho my guess is the euro-zone will break up before Germans get to that point.

Tho ironically, the southern country euro-exit will leave an even stronger euro for Germanic north Europe, will Switzerland, Denmark and Sweden all perhaps not only to even peg to it but even to join it (even with Switz. out of the EU)

---

Euro-sceptic parties are gaining everywhere in Southern Europe, and some of them poised to win soon:

In Spain the hard left coalition Izquierda Unida - inheriting the Spanish tradition of Anarchists, the largest Anarchist tradition in the world - is rocketing ahead and is poised to be the #2 party soon ... they are euro-sceptic and are beginning to digest Spain needs to leave the euro

In Greece the leading opposition party, hard-left Syriza, and on the other side the right-wing extremist Golden Dawn, are both girding for anti-EU and thus ultimately anti-euro positioning

In Italy Berlusconi has halfway talked about leaving the euro if his coalition will win in upcoming elections, and Beppe Grillo is also going there as well

In France, the hard-right party of Marine Le Pen is outright advocating leaving the euro, and they are surging ahead in popularity as well

Spain, Greece or Italy could blow out of the euro on fairly short notice, maybe even by springtime ... The sooner someone does it, the better

Tue, 01/15/2013 - 18:10 | Link to Comment Ghordius
Ghordius's picture

Ambrose Evans-Pritchard? Very unbiased source, eh?
Ah, just short it...

Wed, 01/16/2013 - 07:54 | Link to Comment Surprese
Surprese's picture

You just listed a bunch of losers. Dream on!

Tue, 01/15/2013 - 15:05 | Link to Comment Orly
Orly's picture

At last, the West learns the ways of Zen.

Be like water...

:D

Tue, 01/15/2013 - 15:13 | Link to Comment hedgeless_horseman
hedgeless_horseman's picture

 

 

If synchronized diving was easy, then it would not be an Olympic sport.  I do hope that Kashya Hildebrand's art business is still well hedged against this type of absolutely unforseeable volatility in the currency markets.

Tue, 01/15/2013 - 15:06 | Link to Comment AccreditedEYE
AccreditedEYE's picture

Just BTFD

Tue, 01/15/2013 - 15:07 | Link to Comment fonzannoon
fonzannoon's picture

When it becomes serious....

Tue, 01/15/2013 - 15:29 | Link to Comment Itch
Itch's picture

Draghi sets them up and Jean-Claude knocks them down....two Goldmanites?? Something realllllly fucking strange going on here!! Then throw Stopper into the mix...FUCK ME!! 

 

**So Stopper knew that Juncker was going to say that?? Nah, too far fetched, getting ahead of myself there, again too much ZH :) **

Tue, 01/15/2013 - 15:15 | Link to Comment GoldbugVariation
GoldbugVariation's picture

Love it when the world's most liquid currency pair skits around like a penny stock.

Tue, 01/15/2013 - 15:17 | Link to Comment Orly
Orly's picture

Disgusting, isn't it?

;\

Tue, 01/15/2013 - 15:22 | Link to Comment fonzannoon
fonzannoon's picture

I'm actually fine with it. If they are going to knock metals around I am fine everyone else taking their lumps too.

Tue, 01/15/2013 - 15:45 | Link to Comment Orly
Orly's picture

Sauce for the goose, fonz?

I am of the school that two wrongs don't make it right.

Marc Chandler of  Marc to Market put this idea into my head that the Japanese will start to buy the bonds of the European Stability Mechanism at their meeting next week.  Add that to the happy talk about possibly ending QEx before the end of this year from Fed people these last few days and that may mean that Dr. Bernanke is throwing Japan under the bus on this one.

Was it planned that way?  Are they trying to destroy Abe?  Are the Japanese in cahoots with this?  If European bonds falter significantly, the Japanese will take a tremendous bath on those bonds and they will get their weaker yen faster than they think.

The timing of these statements is most curious out of Juncker, don't you think?  Things that make you go, "Hmmmmm..."

:D

Tue, 01/15/2013 - 15:21 | Link to Comment kaiserhoff
kaiserhoff's picture

Ain't that the fucking truth.  I've never understood forex, not sure anyone does.., but some fool buying the Euro???

 

Tue, 01/15/2013 - 15:56 | Link to Comment Panafrican Funk...
Panafrican Funktron Robot's picture

"but some fool buying the Euro"

Well, keep in mind, the other side of the trade is a person buying USD.  Who is the greater fool?

Tue, 01/15/2013 - 16:10 | Link to Comment kaiserhoff
kaiserhoff's picture

Point well taken.  We'll trade you a used Kenyan idiot for a couple of bunga-bunga girls;)

Tue, 01/15/2013 - 15:16 | Link to Comment q99x2
q99x2's picture

Short the EURO. Stopler says buy. Arrest GS...

Tue, 01/15/2013 - 15:20 | Link to Comment Pretorian
Pretorian's picture

Thomas Stolper for ECB post.

Tue, 01/15/2013 - 15:23 | Link to Comment devo
devo's picture

I wouldn't call Germany the only viable economy in Europe. Unless you mean Euro denominated.

The Scandinavian economies are fairly sound. Poland has had a renaissance, too.

Tue, 01/15/2013 - 15:39 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

There is a much deeper problem - much of Germanys and its eastern plantations exports is eating the  European capital base.

 

The Pigs cannot afford to ship anymore capital into the black hole they call the core.................

 

Germany just wastes the stuff on high quality grot.

Tue, 01/15/2013 - 15:45 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

OECD Europe oil supply

Y2000 : 6.8 MBD

Y2012 : 3.4 MBD

Y2013 : 3.3 MBD (projected ?)

Tue, 01/15/2013 - 16:04 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

OECD Europe oil consumption

 

Y2006 : 15.7 MBD

Y2012 : 13 .8 MBD (now including estonia & Slovenia since August 2012)

Y2013 : 13.6 MBD (projected ?)

 

So 2 ~ MBD or 10 celtic tiger Irelands have just gone..................yet the currency remains hard.............which means people cannot use it.

In the real world this means.

Spain must close light rail so that France can build light rail....................its not working.

The Titianic wastage of existing assets that can be used in a national currency set up is simply huge.

Spain can't afford to pay labour in Euros...........not energy ............this means its energy costs must rise , extracting more from domestic demand.

The Euro was designed to avoid labour inputs using energy / slave arbitrage.

This is the reason global capital or $ oil prices have risen  since 1998.

 

es.wikipedia.org/wiki/Tranvía_de_Vélez-Málaga

 

es.wikipedia.org/wiki/Tranvía_de_Jaén

Tue, 01/15/2013 - 15:53 | Link to Comment AldoHux_IV
AldoHux_IV's picture

Why we will never get true redemption and justice to the HFT/algo mania because it serves as a policy tool for policyfucktards-- manipulate the markets with their meaningless idiotic words, solve nothing in the meantime, and wealth transfer along with rights conintue to the most undeserving pockets in the world.

Tue, 01/15/2013 - 15:54 | Link to Comment joego1
joego1's picture

Wow how he do DAT?

Tue, 01/15/2013 - 16:29 | Link to Comment AgAu_man
AgAu_man's picture

Tyler,
You can ALWAYS have your cake and (then) eat it too.
Just not the other way around.

Surprised no one on ZH has picked up on this. Not had your coffee or energy drink yet? ;-)

Tue, 01/15/2013 - 16:54 | Link to Comment Orly
Orly's picture

You can't "have" something that has been or is being consumed. It's a very old maxim, you know.

Tue, 01/15/2013 - 18:23 | Link to Comment chump666
chump666's picture

Dumb ass money printers.

 

Tue, 01/15/2013 - 19:36 | Link to Comment From Germany Wi...
From Germany With Love's picture

In the meantime, unobserved by the completely useless mainstream media:

The high and mighty German finance minister meets with the non-office-holding opposition politician from a small periphery country:
http://www.n-tv.de/politik/Tsipras-laesst-Schaeuble-abblitzen-article994... (German)

Apparently Schäuble, fearful of unrest endangering the imaginary economic recovery, has tried to convince Tsipras to support the EU rescue policy and apparently failed to do so.

Wed, 01/16/2013 - 12:07 | Link to Comment Surprese
Surprese's picture

A question to Tyler: what does the USD/EUR cross rate has to do with the "redenomination risk"???

It is a fact that the USD/EUR started at 1,17, dipped the 0,89 and topped the 1,59 without any fuzz about the end of the currency.

Quite the opposite, the lower the USD/EUR, the more aligned are the government bonds yields of the Eurozone countries, mainly because at lower EUR cross rates the PIGS are competitive.

The problem started in late 2008 when the USA devalued the greenback through massive QE, shooting the EUR to 1,59 and thus turning these more fragile economies (that export olive oil, shoes and clothing, instead of BMW and Mercedes) uncompetitive, with huge current account balance deficits of more than 10% of GDP that quickly derailed into huge public deficits and out of control debt issuance.

The sentence of Super Mario "it's pointless to go short on the euro." is taken out of context, and it is not about shorting the EUR, but shorting the peripheral Eurozone government debt.

By the way, peripheral Eurozone government debt was the best investment of 2012, beating gold and all other asset classes.

Eat this!

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