Next Steps For The Euro?

Tyler Durden's picture

Over the last week we have spent a lot of time focused on what drives markets. More specifically the notion that while earnings and 'confidence' are often driveled out by strategist after strategist as the drivers for why the S&P will hit 1525 next year, it is the credit impulse or credit creation that drives everything as Central Bankers try their hardest to out-create one another. Furthermore, exactly a week ago we indicated that the primary correlation for 2012 would be the relationship between the balance sheets of the ECB and the Fed and the level of the EURUSD. Sure enough RBC has taken our suggestion to the next level in predicting just what the next steps for the Euro will be. It seems evident that is the ECB continues to 'not print' at this rate, and its balance sheet expands by another 500-1000 billion, the next target for the EURUSD is about 1.10 - which of course leaves no choice for the Fed other than to print as well.

Charts: Bloomberg

Update: By request, a slightly longer-term (QE2 chatter onwards) chart showing the extrapolation suggesting EURUSD is perhaps better priced at 1.20 currently.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
spiral_eyes's picture

Why am I still up over 100%, then?

$1900, $1500, $1000, $5000 who cares where we are in the short term. The dollar and UST is the real bubble, and it's bursting.

Tense INDIAN's picture

Silver is in a bear market is in a spot of bother too...

jekyll island's picture

Very thin trading, end of year selling to take profits or losses if they bought before the plunge.  Net short positions on COMEX for commercial traders remain very low and ECB and Fed are stealth printing on the way to overt QE4.  Silver is on sale, the fundamentals have not changed.  This is the blood in the streets part:  do you buy more now?  I think yes, PMs are the only safe haven we have from central planning and the bankers know it.  They will lose control with more printing and PMs will rise, it is inevitable.  

doggings's picture

PM longs are frying in hell

lol, not exactly, long physical since 2009 (about 100% up still) and short leveraged paper gold and silver since about 4 weeks ago 

laughing my tits off, bring it on bankstas.

disabledvet's picture

It is possible for Team America to go back on a gold standard.

Elwood P Suggins's picture

Nah it's much more fun on the plastic standard.

ThrivingAdmistCollapse's picture

It's closer to a smoke and mirrors standard by now.  Our economy is backed by nothing except military might and money printing.  The economic collapse is going to be inevitable.

smiler03's picture

Who knows, certainly not me? Wouldn't Gold have to go to something like $30000/oz first?

If so it seems as likely to me as the second coming of that chap from the Middle East. 

AngryGerman's picture

round and round and down the toilet

GeneMarchbanks's picture

Round & round but we never quite get flushed do we? You sauerkrauts are lovin' this with your neo-mercantalist play-acting. I don't blame ya...

jcia's picture


LookingWithAmazement's picture

The Fed is printing, do not announce it. The TMS shows an exponential rise. But the dollar does not fall, not even against gold. So no new spike in the PMs.

scatterbrains's picture

Would be interesting to view a gold chart quartely closing line chart (takes out all the bs manipulation swings) overlaid on this TMS chart.

Sudden Debt's picture

Print = beginning :)
At least as my pm's concern. I'm down 140k since the silver top of 50$. I should have bought some puts back than. When they recover, that will be exactly what i'll do. Puts at 40, 50, 60.....

valley chick's picture

so with printing should be inflation which = rise in value of PM's ? 

hamurobby's picture

I would be rich if my hindsight was foresight.


smiler03's picture

If my shortsight was longsight I could see what I was doing

hourglass86's picture

Fiscal Union under the ECB is the only solution at the moment. Low interest rates, inflation will save the Euro at least short term. With the help of the ECB, nations deep in debt will be able to ''breath'' and put their houses in order. Everything else is very risky and proly gonna fail.

Sudden Debt's picture

At 2 jan. They can start printing as the indexes won't give them any problomes according to inflation for 6 to 9 months

laspeyres's picture

This correlation will not persist. The Fed's QE had an obvious depressing effect on the dollar. The Feb bought market instruments off a wide range of institutions and some of them chose to take the proceeds and re-invest outside the US. This pushed the $ down and others amplified the trend by doing $ carry trades etc. ECB balance sheet expansion is totally different. It is 100% directed to the Eurozone banks. This has no obvious FX implications. The banks get cheap funding from the ECB at a time when they need it. There is no reason to believe that the expansion of the ECB's balance sheet itself will depress the Euro. 

Sean7k's picture

Money creation and credit creation ALWAYS have FX implications. Even when they are used to mask deleveraging and deflation. The money will get out, especially as Greece, et al threaten default that begins a derivative run. The market is just pricing it in.

laspeyres's picture

Don't be an idiot. European banks are in the midst of a trillion dollar deleveraging. Deposits are flooding out and they have lost market access. ECB funding to them will replace some of these source and that's it. There will be no money multiplier and no credit creation. 


Sean7k's picture

Don't be a moron,

Debt still has to be resolved. It just doesn't disappear. Somewhere, there is a haircut, a loss, a carry trade, etc- all of which affect FX.

Sudden Debt's picture

At least it will be good for our export.... If we actually made stuff...

smiler03's picture

Sudden Debt,

I was priviledged to live in Brussels for 15 months. One thing I am quite certain of is that you make the finest quality and range of Beer in the world. You do make stuff :O)

Dick Darlington's picture

The unelected has spoken once again:



*MONTI SAYS EUROPE MUST NOT GIVE UP MODEL OF SOCIAL WELFARE (but he said it's unaffordable. Me confused...)


Sudden Debt's picture

A healthy dose of nationalisme will take care of that...
Wat if we kicked out.... You know... Them...

GeneMarchbanks's picture

Can't we all just... not get along.

valley chick's picture

and then they can plan another plan for a summit...

Sean7k's picture

They'll change his name to Montilini.

Havana White's picture

Must not give up "model of"...

youngandhealthy's picture

It will fall because relative rates v.s. US will come down with the reduced inflation.

But Tyler can continue looking in the CB's balance-sheet-tea-leaves if he wish.

The result will be the same.


Non Passaran's picture

Reduced inflation in where? And why?

Rynak's picture

He's an economist. Economists do not know, that economic health, the balance-sheets of banks, and monetary base, are three different things, that can go into opposite directions at the same time.

XtraBullish's picture

forget the Euro - what next for your precious gold and silver? The ZeroHedge "Silver Bitches" are getting fried, bbq'd, torched, immolated, gooned....and with very little hope in store. Just buy the E/S and a few cars of wheat and you will all be fine.

Silver to $10!!! Yeehah!

Non Passaran's picture

What are you talking about?

I'm going to buy 100 oz in 31 minutes.

Silver, bitchez!

Rynak's picture

Robo got a new account?

smiler03's picture


Member for 8 weeks 3 days, Maybe!


smiler03's picture

I bought ETF silver recently, Nov 12th 11, but I can't touch my investment for at least 4 years (UK SIPP). I hate to admit it but I am not worried in the slightest, quite excited actually! Nerr nerr na nerr nerr :O)

Edit: I can sell whenever I like.

nolla's picture


Regarding CB's balance sheets and the reflexion to the real economy (posted this already on another thread...maybe nobody cares about)

Ok, anyone, tell me what is the transfer mechanism of ECB's balance sheet expansion into inflation?

As we know, ECB's balance sheet has expanded by about 600bn this year --> what is required for expansion to be visible in inflation AND M3 AND credit expansion?

Latest figures (Nov): M3 declined to 2,0% y/y (exp. 2,8) and credit growth slowed down to 1,7 from 2,5 in late summer.


youngandhealthy's picture

I don't know nolla...but look no further than to US or UK since they have allready walked this way.

US current inflation rate 3.4%. FED fund 0,25%. Real rate of -3.15%. UK current inflation rate 5%. ROE rate = 0,5%. Real rate=-4.5%

EMU current inflation rate 3% ECB= 1%.. Real rate = -2%

And the real rates has been negative for years

EMU and UK  slightly falling, US stable.

GOLD will come down as well as EUR


pineyard's picture

Excellent ! More of this .. I as a EUROPEAN say !

This will make the Balance Sheats of EUROPE ... even better





Even better : it will not hurt Europes Debt problems ..because Europe ows its debt ..mainly to itself

chistletoe's picture

Workers anonymous are not unemployed.  They are all on strike.

XtraBullish's picture

The Gold trade is DEAD...silver headed to $10. Buy high-quality common stocks with yield and global exposure and a few cars of wheat and you will thrive in 2012. Time to put the tinfoil hats back in storage.