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More euro stuff
Nov. 24th, 2011 01:47 pmThe euro had its biggest fall against the dollar in several weeks on Wednesday, which was attributed to the abysmal failure of a Bund sale on Wednesday morning. I don't have any currency positions now, having closed out everything over the past few days. I think that there's a lot of volatility ahead, but I'm not sure what things will look like when the dust has cleared.
As I said in my previous post, I think that the market is slowly coming round to the view that anything which indicates the euro staying as it is (through eurobonds or ECB cranking out the cash) is bearish for the euro, whereas anything leading to a break-up (the peripheries chucked out) is bullish for the euro. Beyond that is the "total break-up" option, which is neither bullish nor bearish, because the euro ceases to exist.
Anyhoo, this meant that my view was that Baroso's speech probably had more of an impact on FX sentiment than the German bund sale. After all, why would people be hesitant about German bunds? Because if eurobonds come in, it will cost Germany more to borrow. Indeed, the theory might be that the rest of the dogs in the eurozone might break the back of Germany. The disadvantages to Germany of maintaining the euro might actually outweigh the advantages. But, if there's a break-up... German bunds start to look sexy again -- the safe haven in the storm.
So, the future looks set for some weird euro gyrations, with some ostensibly "good" eurozone news actually being bad for the euro, while other "good" eurozone news might be good for the euro. The trick is to be a bit like Taleb -- ignore what the analysts say and just ask yourself "does this make it more or less likely that the euro will still be around in its current form 12 months from now?" If your answer is "yes", then you short the euro. If your answer is "no" then you go long. This interpretation is still the opposite of the common wisdom amongst the standard currency analysts, although I got a hint from Steph Flanders' latest column that she's coming round to this line of thought.
My 60:40 guess is that we will see a further decline in the euro to my old target of $1.26 or $1.25, but I've made enough to put myself into the black for the last couple of years on IG Index (after spunking away quite a lot on equity bets and index bets). So I might just take out a couple of grand and pay off a bit more of the mortgage.
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As I said in my previous post, I think that the market is slowly coming round to the view that anything which indicates the euro staying as it is (through eurobonds or ECB cranking out the cash) is bearish for the euro, whereas anything leading to a break-up (the peripheries chucked out) is bullish for the euro. Beyond that is the "total break-up" option, which is neither bullish nor bearish, because the euro ceases to exist.
Anyhoo, this meant that my view was that Baroso's speech probably had more of an impact on FX sentiment than the German bund sale. After all, why would people be hesitant about German bunds? Because if eurobonds come in, it will cost Germany more to borrow. Indeed, the theory might be that the rest of the dogs in the eurozone might break the back of Germany. The disadvantages to Germany of maintaining the euro might actually outweigh the advantages. But, if there's a break-up... German bunds start to look sexy again -- the safe haven in the storm.
So, the future looks set for some weird euro gyrations, with some ostensibly "good" eurozone news actually being bad for the euro, while other "good" eurozone news might be good for the euro. The trick is to be a bit like Taleb -- ignore what the analysts say and just ask yourself "does this make it more or less likely that the euro will still be around in its current form 12 months from now?" If your answer is "yes", then you short the euro. If your answer is "no" then you go long. This interpretation is still the opposite of the common wisdom amongst the standard currency analysts, although I got a hint from Steph Flanders' latest column that she's coming round to this line of thought.
My 60:40 guess is that we will see a further decline in the euro to my old target of $1.26 or $1.25, but I've made enough to put myself into the black for the last couple of years on IG Index (after spunking away quite a lot on equity bets and index bets). So I might just take out a couple of grand and pay off a bit more of the mortgage.
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