Guest Post: Could the Euro Trigger A 2008-Like Crash? Si, Oui, Yes.

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

Could the Euro Trigger A 2008-Like Crash? Si, Oui, Yes.

If we dispense with all the fancy stuff, we end up with a simple see-saw with the euro and global equities on one end and the much-hated U.S. dollar on the other.

If we scrape away the ever-hopeful headlines predicting a new figurehead lackey or another vote will magically fix Greece, Italy, the euro, Europe's crumbling banks, etc., the global stock markets can be distilled down to one chart. And here it is: a see-saw with the U.S. dollar on one end and the euro and equities on the other.



I know the mind rebels at such simplicity, and so does the entire buy-side Wall Street edifice: if it all boils down to this, then there really isn't much value added by the endless reams of fancy reports and analysis, is there?

But let's presume for a moment that it really is this simple. Where does that leave global stock markets? The answer can be had by glancing at two other charts: one of the euro and one of the dollar.




Now that the cargo-cult chiefs are openly talking about the euro splintering into euro 1 and euro 2 (i.e. business class and steerage), something I proposed as a possible "face-saving" step in the devolution of the euro 18 months ago ( Why the Euro Might Devolve into Euro 1 and Euro 2 March 2, 2010), then the common-sense question is: why is the euro worth 36% more than the dollar? The answer is that it isn't worth 36% more, of course, and for a bit of technical support of that we turn to a simple chart.

There's not much to support Bulls' claims of euro strength here and much to suggest the euro is in a leaky barrel floating helplessly toward Niagara Falls. Classic wedge broken decisively to the downside, check. Uptrend decisively broken, check. RSI declining but not oversold, check. MACD declining and below the neutral line, check. Price below the critical 200-week moving average (MA), check. Price below the equally critical 50-week MA, check.

The last time these conditions occurred (April 2010), the euro cliff-dived from right where it is now around 136 to 120 in a few weeks. Technically, there are numerous reasons to consider this a high-probability scenario and essentially no support for the notion that the euro is about to storm higher.

And as the euro goes, so go equities.



Meanwhile, the chart of the dollar is unsurprisingly the inverse of the euro: it's loaded with bullish bits. RSI rising, check. MACD rising and above the neutral line, check. Classic wedge broken to the upside, check. Downtrend decisively broken, check. Classic A-B-C-D pattern visible, check. Price above the critical 50-week moving average, check.

In another classic move, price kissed the 200-week MA, retraced to support, and is now rising back to break through the resistance offered by the 200-week MA.

Without getting too fancy, the obvious targets for the euro are 120 and parity with the dollar at 100. This could also be seen as reversion to the mean. The targets for the DXY (dollar index) are correspondingly 88-90 and 100-105.

As for what this means for equities, it's a free-for-all limbo dance: how low can you go? The S&P 500, currently around 1,240, could easily limbo down to the psychological 1,000 level, pause to towel off the sweat and then repeat its 2008 swan dive to 666. Or maybe not. The only thing the see-saw tells us for certain is the euro and equities are on one end and the dollar is on the other. If the euro tanks, equities tank, too.

I know, I know, the dollar is doomed, it can't possibly rise, blah blah blah. If you insist on a fundamental reason, then read this: banks are short currency, long assets (Zero Hedge).

And what's holding up the euro again? I'm getting a lot of static in the answer.

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SDRII's picture

Might want to consider this little tid bit about US being approached on a coup in Pakistan...


Harlequin001's picture

and where does gold sit on this see saw?

FreshMind's picture

I picture hands on both sides pushing down only to snap the board and allow the fulcrum to float away.. up, up and away!

h3m1ngw4y's picture

i think gold is the reference point ;-)

so aginst all ods, the gold on the ecb balance sheet is the bullish euro factor. its more or less to market (40,22 anyone)

so it could soak up all to easy the bearish bias and then some more. only from balance sheet appreciation

at least i wouldnt be surprised if eur up big time. the euro bearish is no contrarian bet.

should the fed too decide to mark gold to market, all bets are off for all cross pairs.

Dr. Richard Head's picture

It's the pivot of the see saw.  Basically US Dollar and Equities/Euro can go up and down all day, while the pivot can rise up with no one (aside from central banks, Austrian economists, and the ZH crowd) noticing.

falak pema's picture

gold is archimedes's finger. thats what scares the fiat nymphomaniacs.

The Big Ching-aso's picture

Plenty of fools out there, however greater fools are getting scarcer by the minute.

CPL's picture

Like cancer, the patient is killed inch by inch and the systemic issues are too far along for treatment.


Right now all people are doing is attempting to keep the patient alive even though there is nothing left to save.  It is now just an effort in how far they can torture the body before it inevitably coughs it's last breath out and the body liquefies the same moment it dies.


Even then the TPTB will attempt to reanimate the slop that was once known as the EU.




flattrader's picture

This is nothing but run of the mill chart porn.

Here's a guy who can do real charts--


flacon's picture

Interesting. Do his charts take into consideration exponential debt to get us where we are now? How does that affect the supercycle?

Iwanttoknow's picture

I know Soth asia quite well.The above mentioned person is a US intelligence asett.I find it difficult to find the report credible.

DormRoom's picture

too much global stock (liabilities) problems.  Everyone's looking for good, safe flows.  USD is that conduit.  How USD flow is a good broad macro indicator.

qussl3's picture

Ben will kill it before it hits the high 80s.

The elections depend on it.

J 457's picture

That's right, but S&P will hit 1,040 range before he starts to devalue again.  Oil and commodities need to cool off before any more printing begins.  Don't underestimate impact of US debt debate and potential for govt layoffs as a result. 

qussl3's picture


Perhaps the DXY isnt such a good measure.

My bet is crude <80 and brent < 95, before he goes to town.


11b40's picture

It really feels more an more like they are losing control.

The weaker Europe gets, the stronger the $.  The only way to keep Europe from blowing up is massive printing = weaker Euro, stronger $.  So, Bernake prints like hell trying to weaken....but the public is getting more attuned to his printing press, and what it is doing to the inflation rate.  This may not go down well at all with the electorate in 2012.

One thing I do believe is that 2012 will be a water-shed year - for better or for worse.

Dick Darlington's picture





What will the EU-dictatorship do next? Prohibit free speech? In the name of democracy and zee stabeeletee, of course.

Irish66's picture

Q-Bath tub..he is leaking

Henry Chinaski's picture

The euro crash will be the signal that the dollar is next.  Then it's on like donkey kong, deer in the headlights, rule 48, ZH website crash, you name it.  Bitchez.     

Tramp Stamper's picture

ZH website crash.........I knew it was going to be bad,  but not that bad.  Now I am scared.

jiggerjuice's picture

ZH crashed in August already. Don't you remember? All it takes is the DJIA going up and down 500 points a day for ZH servers to get overloaded and facefail.

graspAU's picture

Good one, or for the Commodore crowd:

LOAD "economy",8,1


tarsubil's picture

This all makes me think of the upside down pyramid. Cold hard cash will have its 15 min before final reality reality with gold.

Mr Lennon Hendrix's picture

Bernanke has unlimited ammo to keep the dollar low.  In fact, Europe is counting on this.

He will keep the dollar low to keep prices "stable" because he wants (needs) stocks to stay elevated to keep pensions returning.

The scenario is what ZH used to so poigniantly call, "A Race to the Bottom"; a term which was stolen by the Economist and other MSM.  Too bad we haven't been using Race to the Bottom as much lately, it still fits.

onelight's picture

But, but..the MHFT said it was all bullish going forward...

11b40's picture

Yes, there may be an unlimited supply of Bernake Bucks for now, but there is a rising chorus of complaint regarding inflation, money-printing, debt, etc.  If Bernake is not careful, he may not last until the fact, he may be dumped in a PR effort to shore up Obummer's popularity.

lapedochild's picture

Thank you for your post... As per your model which seems correct recently.. Any USD weakness ramps stock... what would happen if ECB starts to print? You would get dollar strenght... but would markets tank? That defies logic... since there's more fiat chasing the same assets... thoughts?

xcehn's picture

TPTB definitely KNOW that it can. They will do whatever is in their power to print their way out of this mess at taxpayer expense. Taxpayers are more expendable than the TBTF banks.

SheepDog-One's picture

No you miss the point the printing was to get us INTO the mess...not out of anything.

The printing is over. Next youll face world war, again.

Uchtdorf's picture

Do you know the board game called Risk? I think it will become popular again.

Poll time, ZHers! Can you pick the alliance members on each side of the next world war? My best guess is that unlike WWI and WWII, die Vereinigten Staaten von Amerika and Deutschland will be on the same side in the next one.

pods's picture

Not sure who the purported combatants will be, but the real war will always be banksters vs humanity.


flattrader's picture

Excellent analysis pods...with the bankers as proxies (bitches) for the uber wealthy.

Everything else is just political/nationalistic noise.

Zedge Hero's picture

IMF,ECB,WB,FED,BOE vs Human Species

Battle Ground = World

I think a world civil war could happen, every country revolts from within, oh yeah, thats right, it's already happening.  Instead of fighting each other this time we might turn on TPTB and take the fight to the Banksters!! Give em a taste of their own medicine this time.

"This just in George, all the Central banks have been occupied and destroyed by citizens around the world. And Now back to Real Jersey Whores and your regularly scheduled program."

This revolution will not be televised.

It's a Bank run Bitches!


DarkestPhoenix's picture

I've said for a long time....US takes Iran....three countries in a row....extra men at the start of the turn, FTW.

EL INDIO's picture

All FIAT currencies are equally worthless and there is no reason for the USD to be the weak one all the time. That is why it is going up for a while. That's the game, currencies are trading in a range and they will depreciate and die together.

Dr. Richard Head's picture

Agreed.  Debt to GDP levels (of the disclosed debts at this point anyway) are similiar in Portugal, Greece, Spain, US, etc.  When one's value holder currency is a debt-based one and banks can create capital through fractional reserve lending (ledger created capital), the recipe for purchasing power loss is guanranteed.  Unless of course you have close friends in the Central Banks/Governments.

s2man's picture

yep, they just take turns ratcheting the currencies value down, yet keep the exchange rates in a range which makes them appear to maintain their values.

Captain Benny's picture

Beyond the charts, it seems like the Euro has a long way to come down relative to the dollar.  The political structure of the Eurozone is in shambles and they are urgently looking for a way for the ECB to monetize the sovereign debts.

Of course the US equities market is going to tank from this.  Simple margin calls aren't enough to handle the deleveraging needed in the equities and commodities market.

SheepDog-One's picture

I cant understand why Europe is not totaly engulfed in riots and flames...same with the US actually, I dont get it.....unless theyre dumping Lithium and Xanax and Flouride into drinking water supplies like mad.

EL INDIO's picture

Sex, alcohol, drugs, entertainment … that’s why.

SheepDog-One's picture

No one can afford hardly any of that anymore.

john39's picture

what an incredible event.   these kids are so deluded that they riot to protect a washed up old football coach who covered up for child rape.   Until Americans wake up, they will continue to get raped.

Dr. Richard Head's picture

Those same students also fight for continued government funded debt to become part of the system.  College is only good for getting threesome with drunks whores and access to home-grown.