How The Euro Keeps Defying Doomsayers

Tyler Durden's picture

In his latest Macro View, Richard Jones, an FX strategist who writes for Bloomberg, explains the resilience behind the common currency which has ignored every adverse piece of news thrown at it, and identifies the one main reason it keeps "deying the doomsayers."

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Euro Can Keep Defying Doomsayers, Thanks to Draghi

The euro rally is sustainable even amid the latest flare up of European political uncertainty.

A buoyant macro-economic environment partially explains the resilience, but most credit should go to the backstop offered by the ECB.

The laundry list of challenges -- coalition talks in Germany, Catalan secession, an Austrian election -- has failed to meaningfully impact either the single currency or the region’s sovereign yields. The Bloomberg Euro Index trades only about ~1% lower than the multi-year high seen in late August.

Mario Draghi’s "whatever it takes" rhetoric still inspires confidence in investors. Then add the not-insignificant fact that the ECB has bought more than 1 trillion euros ($1.19 trillion) of securities. Even with the specter of a potential taper, buyers of peripheral bonds know the central bank has their back.

If real pressure emerged, the ECB would doubtless be willing to deviate from the capital key to contain those risks. The bank has a proven track record of bending the rules when required.

A pick-up in both sentiment and hard data is contributing to the euro’s positive momentum, leading to a view among policy makers that the currency is rising for the right reasons,

Political and economic challenges remain. The case for structural reform remains as strong now as it has at any stage since the single currency was adopted. But investors seem optimistic that this can be achieved, especially if France and Germany begin to co-operate more than they have in the past.

Positive developments on that front would just provide the nitro boost to the durable and resilient euro appreciation trend.

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07564111's picture

" What Ever It Takes "

Yep, they'll kill the peons so they don't have to admit the truth.

Funny, Draghi didn't look so smug when this happened.

http://www.zerohedge.com/news/2015-04-15/dratghi-attacked-protester-ecb-...

JRobby's picture

They need someone to cook and serve the food, clean, service the autos etc.

kellys_eye's picture

They're all in this fraudulent scheme together and fear the first person to cry 'the emperor has no clothes' that will start the inevitable collapse.

The PEOPLE already know he's naked.

JRobby's picture

Is that a link to someone plunging to their death from the Matterhorn?

Atlas Crapped's picture

Conspicuously absent from this observation is that the Euro is completely divorced from the political sideshow. It represents a mature currency that can be substituted for the declining dollar today. It is also "backed" by the worlds largest "official" reserve of gold, the number one item on the asset side of the ECB balance sheet, marked to market (for what that is worth).

Real money understands this. They are  not constrained to the Draghi reality show theatrics. "Whatever it takes" does not assist the currency at all.

Singelguy's picture

The important distinctions are twofold.
1. The official gold reserves belong to to the individual member countries, not the ECB. The ECB cannot use that gold on their balance sheet.
2. There is no EU debt market. Each member country issues its own debt which through the ECB purchases, are kept at an artifically low rate.

The value of any currency is based upon the confidence of investors. If investors feel that the government is incompetent or totally corrupt, investment capital will flee that country and the corresponding currency will drop in value. This was last seen in Zimbabwe in the 90's and is now happening in Venezuela.

Ghordius's picture

1. not correct. you are mixing up the ECB's gold with the national gold reserves, which are separate. and bigger

2. correct. but irrelevant. each national debt market is separate, yes

further, the eurozone 19 are, in total, net positive in their payment account aka "current account". this means they have an excess in investment, either in the eurozone or outside

meaning that the typical investor is an eurozoner, calculating in euros, not a foreigner calculating in a different currency

and, typically, he buys the local/national debt. Italians the Italian bonds, Spaniards the Spanish bonds, etc.

safe as milk's picture

" typically, he buys the local/national debt. Italians the Italian bonds, Spaniards the Spanish bonds, etc"

i guess someone forgot to tell deutsche bank.

https://www.forbes.com/sites/francescoppola/2014/05/19/deutsche-banks-latest-capital-raising-wont-end-its-problems/#bf58d1d43337

mototard's picture

The "Euro" has zero gold reserves.  The members of the Eurozone do have gold reserves. Quite a difference.

Ghordius's picture

have a look at the first item in the assets of the ECB

WallHoo's picture

So what if you have gold on you balance sheet?Are you gonna pay fiat credit with gold??Fucking dumb fuck...

 

Fuck the EU/Eurozone.

WallHoo's picture

I call bullhit on an EPIC scale.

The real reason the euro can withstand pressure is because the gorvements that use the euro can withstand pressure.The eurozone economy is huge(yuuuge),the said states tax you in euros and have set the euro as a legal tender for all debts and taxes,hence as long as euro-using gorvements use the euro,the euro will exist...

But by no means is the euro a reserve currency,reserve currencies needs to be abuddant (obviously) for world trade.The only way to do that is through defict spending from the state and a sustained deficit in trade.The problem is theres no (centralised) state to run the budget deficit and obviously theres no trade deficit,in contrast to that the "economic powerhouse" of europe (germany) runs a huge trade surplus to satisfy domestic private and public debts,investments,wages and the economy in general.

 

All money is debt and the only one that can make debts for a long long time is the state,There is no state in europe,which means that the only way for eurozone countries to exist is from trade surpluses.

 

My personal opinion is that the squid has concentrated its efforts in Europe,the european block tries desperratly to concentrate wealth on huge levels from all around the world,either by trade or by outright owning properties or companies(stocks) around the world or throught debt obligations(bonds).Think of it as China on steroids.The difference is that the chinese are pumping money into their own market,in europe theres noone to throw any money anyhwere.So all deficts around the world like for example from the US go to the squid centered in germany,i would advice caution to Americans...

 

All international trade is barter,gold could be used as an internation mean of payments between nations but nothing more...Gold has nothing to do with the euro defying any adversities.In fact european debt problems are made up in order to introduce a federal state,in the absence of gorvement money and in an inviroment where credit is deflating,a euro state or a "eurozone economic ministry" seems better and better by the day.

 

Fuck the EU and the german cucks.

 

 

Ghordius's picture

"But by no means is the euro a reserve currency,reserve currencies needs to be abuddant (obviously) for world trade."

wrong

the definition of "reserve currency" is "what other, foreign national/central banks hold as assets"

example: the People's Bank of China holds trillions of US Treasuries on their balance sheet. those USTs are part of the FX Reserves of the PBofC. that makes the USD a reserve currency... for China

why a currency is held as reserve can have political reasons. sure, trade plays a role, but not the only one

WallHoo's picture

Wrong?Obviously holding dollars outside of the USA means theres and abundance of them,or you cant hold them...And obviously that justifies the deficits that the USA has with the rest of the world in contrast to the eurozone that has a surpluss bigger than China.

 

The rest that you say are true for sure...But OBVIOUSLY everybody knows that ""reserve currency" is "what other, foreign national/central banks hold as assets""

 

Duh...

 

I was talking about the dysfactional euro...Dont throw the ball around sick cuck.

Doom and Dust's picture

Eurozone exports ex-EU are booming despite a strong euro, and the euro is strong despite the ECB's QE.

Italy, Germany, Spain, the Benelux and the Nordic countries all have stronger economic growth in real per capita terms than the US, or the UK.

The Eurozone is now the cleanest shirt in a very dirty basket.

nmewn's picture

Also correct...

"In 2014, 183,500 people across the EU died due to mental and behavioural disorders with women accounting for around two-thirds of all deaths."

...lol.

nmewn's picture

Yeah, its right there on the front page, all the euro-wienies have to do is scroll down...lol.

new game's picture

we suicided some folks...

Joe A's picture

On a population in the EU of 500million that is 0.0367%.

Ghordius's picture

+1 I was waiting/hoping someone would make that quick math

0.0367% is, in other words, three in ten thousand, or 34 in 100'000, or 367 in a million

Singelguy's picture

The exports may be "booming" but budget deficits continue, taxes continue to rise while debt increases, not to mention the huge costs associated with the migrant problem.The same is happening in the UK, Japan, and the USA. It is unsustainable. It is not a matter of if but a matter of when this all collapses.

Doom and Dust's picture

You are lying.

Eurozone budget deficit is 1.5%, lowest in the developed world. Germany and the Netherlands are even running budget surpluses.

The real immigrant problems are in the US and UK, whose populations grow at 0.75% and 0.60% respectively. Nowhere near any Eurozone country.

Jultorsk's picture

The "Nordic countries" Sweden & Norway are not in the eurozone and Denmark is just pegging along. Finland, in euro, is an absolute economic disaster waiting to happen with clueless muppets in the rudder.

Doom and Dust's picture

Liar. Finland is growing at 3% in 2017.

 

libertyanyday's picture

thats about 150,000 people.........how would you know , govt issued numbers no doubt

Yog Soggoth's picture

Thats like some Liberal from Vermont not seeing any hispanic invasion, while the people in problem areas have to dress their kids in certain colors to avoid being shot or stabbed. Funny I never had to learn gang signs 25 years ago, now the elementary school kids have to know them to know when to run. How does it remain 11 million for over a decade even though they are still pouring in and having 4 kids a couple? When the EU falls apart, Germany is still sitting on the biggest piece of yellow to back the new Mark. Even if the real plan was to see if they could start the new world order from the EU, failure leaves all the stolen assets to Germanys elite investors while the smaller countries have to recover losses from getting ripped off by the scam.

WallHoo's picture

All those countries also have a falling living standard you fucking cuck.Everyone is living on ECB QE that was implemented to protect the rich and recycle debts until a more permanent sollution is found(european state,european economic ministry).

 

For no reason at all money(credit in the case of the eurozone) comes from debt,perpetual serfdom for everybody.And you little sick fuck like that.The elites in europe have managed to concentrate political(brussels) and economic power (ECB) while everybody else at the bottom suffers.

 

Tell me you little cuck why the fuck should anybody export if they dont intend to import?Why is exporting good if you dont want to import anything?And how will everybody in the world are going to live if EVERYBODY WANTS TO EXPORT??How is that even possible?Are we gonna export to aliens?

 

But of course you need exports in order to pay your masters...

 

Fuck the EU. 

 

 

 

 

Doom and Dust's picture

The Eurozone has only a 24bn/year trade surplus you ignorant numbnut. As to oligarchic tendencies Europe is the least unequal continent in the world.

You know nothing. Man your schools must suck. Can you even breathe ok?

 

WallHoo's picture

Allright sicko its on,you wanna get youre ass kicked here we go...

 

1.You say nothing about the QE Euro-zombie land...Nothing about the QE being a recycling mechanism for youre masters and nothing about the dysfactional euro that has no autority(state) to manage the currency.

 

2.You say nothing about the debt based system that we live in and you hide behind 3rd worlders to justify the dictatorial regime that the EU/Eurozone has become.

 

3.And of course you say nothing about the neoliberal madness of "we need exports but who cares about this sick system"

 

The only thing you do is a little fart saying,"The Eurozone has only a 24bn/year trade surplus you ignorant numbnut."

 

Ok then how about that,maybe you are correct on that...

 

Here are the charts on the current account balance for a bunch of countries and "regions":

https://data.worldbank.org/indicator/BN.CAB.XOKA.CD?end=2016&locations=U...

 

China the fucking Giant in 2015 had a CAB (current account balance) of 304.164 billion dollars and in the year 2016 196.380 billion dollars.

 

Eurozone,the sick cuck land had a CAB of 329.196 in 2015 AND

 

USA for the year 2015 had a CAB of -462.961

 

If it wasnt for the USA the whole world would be starving for money to satisfy this sick system.Of course americans are too stupid too understand on what kind of goldmine they sit upon and how they are getting riped off.As i said before in above commets,the squid is in full swing in Europe and it is gathering wealth from all around.The center of cource is cuck-land germany.In my above comments i also mentioned not only exports,but assets and debt. 

 

How is it possile that sick fucks like you are so arrogant is beyond my imagination...

 

 

illuminatus's picture

All you captains of high finance, I hope you know that the gravy train is a two edged sword and while the central bank giveth, you can be sure that it taketh alot more. 

FredGSanford.'s picture

The stock market and the economy also continues to defy doomsayers.

It’s rather humorous. The folks who continue to predict a crash continue to be wrong. They look more foolish everyday.

It really defies all common sense.

rmopf2010's picture

print, baby print!

1Trillion not enough?

print 2Trillion

print 10Trillion

 

Whats the diference ? in the end it's all fiat funny money anyway

 

Comunism v2.0 here we are

 

 

shutterbug's picture

Nah, communism was/is something different.

There seems to be a need for new labels & definitions ... because it's something which doesn't fit the current ones.

rmopf2010's picture

Comunism V1.0

The will of People was forced by weapons by a minority (TPTB didn't realize state dependents were enough to win all elections)

Comunism V2.0

ratio "state dependents/private workers" is greater than 1

TPTB know have full conscience they can win all elections just because all "public workers/retirees/ebt cards/etc" are

in greater number tha private workers, so it's easy to win elections

 

 

 

 

 

shutterbug's picture

Not really. It's all about timing and nobody can get that right ...as long as central bankers can "create" currency to the amount they need.

When THAT stops...

It's nothing but common sense. Only in a very, very, twisted world.

floosy's picture

At least they no longer pretend that a Central Bank Fiat currency system is anything other than a means to turn the blood sweat and toil of ordinary folk into hard assets for the elite.

Ghordius's picture

it's the "game in town" and the "town" is the whole planet

ordinary folks are hurt by two things, usually: stagnant wages up to no jobs, and prices for living needs going up

in this context, a stable currency is good for workers. the rich can cope with other scenarios, mind. they always did

nevenbridge's picture

euro is shit for workers, euro is built upon the deflation of salaries. It's pure incandescent liquid shit for the 90% of ppl. 10 years i want to leave this fucking euro zone but political parties keep changing their election program ffs. I would actively support a new fascit coup d'etat.

My country decline started with the CEE that lately became the more shitty €uropean union. €uro is a fucking cancer.

Ghordius's picture

and you are comparing with... what? name the country/currency

that "deflation of salaries" is not something hitting your country only, you know? it's worldwide

in fact you can have that scourge... on top of rising prices. as in "stagflation", for example

Yog Soggoth's picture

Probably why I see so many people from Europe moving to Florida, and telling me how much cheaper it is to live here. What good is a slightly higher currency when gas is 6$ a gallon, people live in 900 sq flats all for NYC prices, with bedbugs.

libertyanyday's picture

fiat currency inherintly is un stable. Inflation is a necessity to hide the underlying wealth theft that must occur.  Fiat ALWAYS destroys the working man, always

Herdee's picture

The world view of Washington politicians allows him more room.

dark fiber's picture

It works until it doesn't.  Seen it before.

shutterbug's picture

Crazy is ... DEFINED ... by (central) banker people like Draghi... he would kill the world, just to do what he thinks is "right"...

Now that seems to be repeating in this era ...

Bearwagon's picture

Same old, same old "it's a project in the European Union. That's why you have a very hard time asking people like me 'what would happened if'." No Plan B  ;)