Wednesday, May 24, 2017

The Euro is on fire!

Over the past 3 months the Euro has exploded (8%) against the US dollar, moving from 1.04 to 1.12 in the space of only 90 days, this is a massive movement in the European currency and is difficult to understand or explain.

First, is the Euro improving or is the dollar falling off a cliff?  These may seem to be the same thing but they are not; looking at other Euro pairs (Yen, CAD, Peso) and you get different result;

The Mexican Peso -- third most traded currency (I know who knew) is looking at a price move of nearly 7% over the past 6 months, but of course the Peso was seriously devalued in 2016 -- a reflection of all things Trump -- since then the Peso has returned to its long term trend (slow 3-4% annual devaluation to reflect the higher inflation rate).

The Yen:  After the November election the Yen took a fall from 104 to 118 against the USD, this is slowly reversing itself towards 110/11 (seems to be an appreciation trend

The CAD:  has remained largely unchanged around 1.3 its got ups and down but the reality is that the CAD (that was trading above the USD in 2007 is now trading at a 30% discount to the USD -- talk about cost devaluation for Canadian manufacturing & services...

Sterling:  No trend the price has been more about the UK's economy and the BREXIT process, the pound has gone from 1.5 to 1.3 in the past 9 months

Back to the Euro:  There European experience while in the same "time zone" as the Yen and the Peso has been far more explosive; it could be that Europeans are feeling that the US economy is done and gone -- "sell and may and go away" trend -- it could be a number of factors, but there appears to be a strengthening of the European cohesion after the Brexit vote, there seems to be greater reassurance that despite the UK and Greece that Europe is going to survive.

There is no doubt that the election of Macron (centrist) in France and the serious defeat of LePen -- far worse than anyone anticipated help to cement the democratic sense that the European experiment will survive (it may or may not).  The market has spoken, there is no doubt that the direction is confidence in Europe.


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