As foretold by the prophecy.*
I hate copying out whole posts but this one is solid, head to foot. Forgive me FTA.
From FT Alphaville:
Hot off the embargoed presses at BNP Paribas, a bold call for the Mighty Drachmark vs the dollar. Emphasis FT Alphaville’s:
We have revised our EURUSD projection sharply lower and now expect a decline to parity by Q1 2011. While we have had one of the most EUR bearish forecasts in the market, these previous projections now appear too moderate given current developments. We had feared that the structural weakness of the eurozone, due to the increasing economic divergence, would make it more difficult to obtain an optimal policy response. This has played out, but the inner EMU bond spread divergence and its impact on capital flows has been more severe than had been initially anticipated.
European bond markets are no longer a homogenous entity, which has reduced their attractiveness to foreign investors. Over the past year the net inflow into European sovereign debt markets has collapsed. Official accounts, which had been steady EUR buyers and bond investors for years have disappeared. Of course, we would not expect central banks to adjust existing Euro holdings, but incoming reserves will no longer be reallocated into Euros. Peripheral credit risks have reached elevated levels despite Europe having already played its fiscal transfer option. This observation convinced us to move our EURUSD call sharply lower.
Now that the fiscal option has been used without much success it will be down to the ECB to come to the rescue of the EUR. But, ECB President Trichet did not leave the impression that this rescue comes at speed. There is still too much talk of securing price stability while the real problem is deflation. Currency markets tend to anticipate paradigm chances. Europe will change from using fiscal tools, attempting to heal European divergence with monetary instruments, sending the euro massively lower.
And their predictions, in handy chart form:
*Okay not $1.00 but $1.25. Starting with the Nov. 18 post (a week before the Euro top-ticked) "Everybody's Dissing the Dollar":
I don't have anything concrete I can point to but 1.50 EUR/USD almost feels as if someone has drawn a line in the sand. As more and more money piles into the trade without movement past that line you start to lose the mo-mo traders and the psychology can shift fast.Nov. 19: Goldman On The Dollar Carry Trade: "A 20% Reversal In Either 3 Months Or 3 Days"
If the buck were to turn and head back to say, 1.20, the results for equities and gold would be painful.
I'm just sayin'...
Nov. 25: "Dollar Sliding Into New Trading Range":
Well, you get the point:The euro hit a fresh high for 2009 at $1.5144 as selloff in the greenback took another big jump in New York afternoon trading....Making this pronouncement from a week ago look a bit silly:I don't have anything concrete I can point to but 1.50 EUR/USD almost feels as if someone has drawn a line in the sand. As more and more money piles into the trade without movement past that line you start to lose the mo-mo traders and the psychology can shift fast.It's either one of those "I may be in error but never in doubt" statements a rookie would never refer back to or it's a Maxwell Smart moment: "Missed it by thissss much".
If the buck were to turn and head back to say, 1.20, the results for equities and gold would be painful.
I'm just sayin'...
[or it's like spring '08 when you said $1.53 and we went to $1.59 in July -ed]
I'm leaning toward Humble Student of the Markets' interpretation...
Dec. 2: EUR/USD $1.5052 "Dollar: not dead, just smells funny" (DXY)
Dec. 9: EUR/USD $1.4717 Euro Faces ‘Bearish Setup’ Against Dollar: Technical Analysis
Dec. 17: EUR/USD $1.4348 "Technical Analysis: Euro Faces More Weakness"
Feb. 4: EUR/USD $1.3783 "Euro Risks ‘Leg Lower’ to $1.3405: Technical Analysis"
Feb. 24: Foreign Exchange: "Euro ‘Mortally Wounded’ as Index Indicates Drop: Chart of Day"
Feb. 27: EUR/USD $1.3632 "Short-term Bottom for Euro "
Although we've been bearish on the Euro since November it might be time for the buck to take a breather before ...April 1: Goldman Sachs on EUR/USD: "no freaking clue where the EUR will go next" (GS)
April 22: "Forex: EUR/USD weakens below 1.3340 on Greece debt woes"
