Here’s What We’ll Need To Enforce A Trend Change In The Euro
- Dollar opened
sharply lower in New York versus the euro but wound up the day
substantially higher - ECB Governor Trichet
sent the Euro falling with several comments about European bankers
being concerned with the Euro strength - Is this the end of
the sell – off in the Dollar? - Will Greenspan and
Bernanke lend support to the Europeans to help talk the dollar higher?
The Euro pressed the
129.00 level in the cash markets last night but fell dramatically as
several European financial spokesmen tried to talk the currency
lower. The jawboners had their way and the Euro fell almost 200
points from their highs. Without question, the Euro has become short
term over bought and was susceptible to a correction. Trichet’s
comment “…that excess volatility and brutal moves were not welcome and
not appropriate. We are concerned. We are not indifferent,” was
enough to start the Euro heading lower and profit taking provided the
steam. Is this the end of a powerful downtrend for the dollar? I
don’t believe so, for historically, major trends do not end on the
words of a French or American jabber . Changes in major currency
trends come when actions speak louder than words and outside of the
Chinese and Japanese, actions are non-existent.
What could enforce a
trend change in my view? Well, for one, a significant cut in European
interest rates would be a start. Lowering rates in Europe would
reflect genuine concern on the part of Trichet and company. The U.S.
policy is for Europe to reflate so that the Americans are not the sole
generator of economic growth. The Europeans cannot continue to
complain about the American twin deficits if they are not willing to
stimulate growth in their economies. U.S. trading partners are
dependent on American consumers to suck in their exports but it cannot
be a one way street forever – the trade balance has to correct
sometime. If the American consumer slows down his spending, Europe
has to be prepared to pick up the slack or world trade will slow. This
is the global environment the Federal Reserve wishes to promote.
^next^
From a technical
view, for me, the spot Euro currency rate will have to settle under
the 127.00 price because that was the low of unemployment Friday. If
the Euro currency can take away the move off a horrendous statistical
report, from that time I would view the market as corrective in
nature. Again, the dollar trend would not end but only be corrective.
Tuesday and Wednesday
will bring speeches by Alan Greenspan and Ben Bernanke. If those two
mandarins of U.S. policy fail to support Trichet’s comments in any
fashion, the Dollar should head back lower and the market will test
the European’s fortitude. Greenspan is speaking at the Bundesbank and
it involves a question and answer session so I urge all traders to pay
close attention to the nuanced answers that Greenspan will give.
Wednesday Governor Bernanke will be in Switzerland discussing monetary
policy and if the markets move wildly on Greenspan’s comments, we
shall wait to see if Gentle Ben remains subdued. If my theory holds,
the onus will be on the European central bank to cut.
Now as an aside, I
would like to take the time to deal with a question that many readers
have asked. Traders keep asking me to recommend trading companies for
currencies. I will not recommend any particular clearing house but I
will say that any trading platform must have the three pillars of
financial strength: transparency, liquidity and
creditworthiness. I believe that these are so important that I
have trademarked this: TLC- transparency, liquidity,
creditworthiness. As a shareholder and member of the Chicago
Mercantile Exchange, I do most of my currency trading there because I
believe that as a regulated futures exchange, it affords me the best
access to these three elements. For me, this is what every trader
needs and desires. This is all I will recommend and I wish you all
successful trading.
Yra Harris