Crude oil prices are tumbling as the USDollar pushes on to new highs driven by the continued stretch of renewed weakness in the Euro. As Bloomberg's Richard Breslow notes, however, "it’s not all about Greece. Not even close."
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As we think about the relative cyclical states of economies and where they need to be priced in the markets, Europe does not look to be in a very good place. And this is not a bad thing.
In the post-Bretton Woods world, it is obvious that the euro downtrend is ultimately the life line needed to both save it and usher in the new world of global financing that reflects the rebalancing needed to fund world trade and global economic resurgence
In the last year, the EUR has been in an unmistakable downtrend versus the bellwether currencies it needs to partner with to fund global economic growth, as well as against the Chinese renminbi, which can no longer be ignored by labeling it an emerging currency. So let’s take a look at the EUR versus the SDR basket and CNY...
EUR/USD hit a one year high on July 1, 2014 at 1.3700. Since then, it has respected a very clear trend line through May 15 with no breaches. When it threatened that trend line, ECB Council member Benoit Coeure rushed to let the market know that the ECB was poised to boost its asset purchases. After a one-month peak above the very telling 55-DMA, the EUR yesterday broke back below this level. There are now loads of resistance points at 1.1050, 1.1205 and 1.1470.
Yesterday’s U.S. economic data, in this data-dependent world, lent impetus to the latest leg lower
EUR/GBP had its trailing one-year high in May 2014 and looks set to not only make a new one-year low, but a five-year low. On the monthly charts, it looks even worse. Through 0.7000 (current level ~0.7080), it revisits pre-financial crisis levels
Versus the appropriately sickly JPY, the EUR (~134.50) is ~15 cents below the one-year high, 3 cents below the one-year average price and is flirting with the low end of the 100-DMA/200-DMA range that has defined this month’s trading. Perhaps more importantly it remains below the monthly support levels
And now, back to the SDR issue, the EUR looks horrendous versus the CNY and broke back yesterday below its 55-DMA.
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The trend is so obvious that in retrospect you would have to kick yourself not to take the fundamental story, look at a chart and sell, sell, sell. The latest rally in the cross was so perfectly defined as to be text book material. Through 6.500 (current level ~6.7600) there is no support.
Repetition alert: To save the EUR it has to be devalued
All this came to mind as I was reading stories yesterday about this past weekend’s elections in Poland and Spain, Italian PM Renzi’s conclusions that EU austerity insistence has been a political disaster, and how Merkel and Hollande were banding together to rebuff Cameron’s renegotiation efforts
Rajoy’s PP was pummeled because he has been so intent on portraying himself as a core Europe advocate that he utterly forgot who he was elected to serve. He will be fortunate to survive until the national elections
The EU is fighting battles whose ships sailed a long time ago. If it does indeed represent all of Europe, policy makers have to bury a lot of hatchets they don’t seem close to dealing with
As Europe struggles with reform of all kinds (and Mario Draghi can’t save them on his own), it is fascinating to compare their efforts with what is going on in China
China has embarked on a massive campaign to curtail a shadow economy rooted in corruption and useless projects. As a result, the economy has suffered -- in the short-run. They know this. They are openly planning additional stimulus, even if they have to do so by sucking in hot money. The markets are apoplectic that China is not providing instant gratification. What they are doing is getting their house in order, and they will emerge that much more ascendant. By contrast in Europe, the prescription for political reform has been well-defined for years, yet they continue to prove incapable of moving toward a sensible fiscal and monetary union
Those who chase the Shanghai Composite may be doing the greater good but at their own expense. Aside from that, a new SDR currency is baked in the cake
