Written by Rick Ackerman, Rick’s Picks
The Euro/USD looks to have made a temporary low and should bounce a bit here. We don’t normally discuss currency pairs and the Forex market at Rick’s Picks but it’s important to understand what’s happening globally to understand what will happen domestically.
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With the constant bashing of the Fed compared to what’s going on in Europe the U.S. Fed looks like the Rock of Gibraltor. When you buy a U.S. Bond you are buying a bond representing all 50 states. Can you imagine buying a California Treasury Bond or a Florida Treasury Bond all with different yields? That’s exactly how the Euro was setup with each European member having it’s own bond instead of a unified bond market like we have here in the U.S.
This is the Euro’s fatal flaw and this is why the German Bund is trading at 200 basis points lower than the equivalent U.S. treasury because German Bund investors think they are going to get Deutsche Marks when the Euro finally collapses.
Once the Euro/USD bounce to the trend line resistance concludes (could take a few months to play out) it’s easy to see it dropping into the abyss below the critical 1.16 area and all hell breaking loose in Europe. (Note: The euro all-time low vs. is 0.82 vs. the dollar in October 2000.) Not only is this going to fuel the flight to U.S. equities but also catapult the U.S. dollar much higher. How high could the dollar go? The 1985 highs (dollar index at 128 vs. around 92 today) is not outside the realm of possibilities.
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