It’s upto 1.096 now and this has surprised me a bit - yes, I was expecting EUR/USD to rally from 1.05’s after Yellen’s statement, but it’s gone up to 1.1 and if you look closely at price patterns, it’s showing no signs of a decline
Today’s Durable Goods report wasn’t that helpful for USD bulls either. IMO, it’s pointless to have a directional bet on EUR/USD now, coz,
If we see a grexit, Eur is gonna go through the roof
If Yellen doesn’t raise rates in June (even modetly), whcih is highly likely
Europe’s retail figures have been improving lately
#1. If the EUR going through the roof means appreciate vs the USD, no chance. Greece leaving increases the odds of all PIIGS leaving and will have a meaningful deflationary effect in Europe in the year or two after it occurs. It would also have an immediate negative effect as Greeks would be converting to Drachma and would no longer be using Euros, meaning mass selling of EUR in the early days. LT it might help the EUR but short term it’s terrible. 2. I think the pair will only be meaningfully affected if there is no hike by October. The odds os a June hike are already quite low. 3. No comment. These figures are quite unreliable for calling trends, particularly since 2008.
Disagree - if Greece exits, Euro will be significantly stronger as a group and Spain/Italy/Portugal are no longer struggling as they were so it’s not really going to be as contagious as it could’ve been before. If greece has to exit, which it inevitably will at some point (given the animosity with germany, general state of economy which is extremely bad, etc etc).
And no, all greeks would want to keep Euros vs Drachma.
No problems with the other two points you’ve mentioned.
thats a good point in greece. greece is a bad player. no credibility. which could make th euro stronger. but i would consider it a weakness in the euro too. greece leaving could also be catalyst that leads to other players leaving causing the lack of trust on the euro. could really go both ways though.
as far as euro strengthening against the USD. not a chance. they are at negative rates and they are printing a lot of moolah. while the usd is raising rates plus we grow faster than them. the direction is weaker euro. that being said, this is prolly all priced in, and we are in the lower half of the historical average but are fairly close to it.
it comes down to up to 10.8 million people no longer using a currency in their daily life. less use means less demand which means lower price versus other currencies. irrespective of the longer term positive it may have, this is an extreme negative in the short-term. and yes, the odds of many countries leaving and their populations no longer using the euro in daily life rises as well. further, it would likely eliminate any chance of other non-EU countries from joining the currency union. finally, if greece leaving results in a major greek gdp decline, this will spillover to their trade partners. very deflationary, particularly vs. the USD as the U.S. barely trades with Greece. not to mention Greece leaving means a default on $200B+ in debt which is solely owned by EU countries.
i agree that longer term this could be a better thing for the Euro as Northern Europe’s productivity is much better and finances much cleaner but they will be hit hard in the short-term. at best, this is a J-curve type situation whereby the North is under extreme pressure in the short term but improve over time.