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The euro is taking a serious beating today, falling more than 1% to $1.2791, its lowest level in 15 months.
But it’s still too expensive.
Remember, back in the Spring of 2010, when euro-zone fears first really gripped the market’s imagination in a let’s-all-panic sort of way, the euro dipped below $1.20 against the US dollar.
There’s no good argument for why it should be more valuable than that today, particularly with the euro-zone sinking into recession as we speak, while US economic data keep surprising to the upside.
Julian Jessop at Capital Economics sees the euro hitting $1.10 before long:
The relative strength of the recent economic data from the US is supporting the dollar more generally, and we expect this divergence to persist as the euro-zone slides into a deep and prolonged recession. Above all, doubts about the very survival of the euro itself are likely to remain a drag on the currency. We therefore continue to expect the euro to fall to around $1.10 by the end of the year.
For perspective, the euro hasn’t been at $1.10 since September 2003.
One key question about this scenario, from a US perspective, is how long US stocks, and the US economy, would be able to stay detached from a tumbling euro. They’ve been a little less correlated in recent weeks, but that’s been an exception to the rule of the past several months.
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The euro has been structured as the world’s greatest ponzi scheme…
The most disturbing thing about this week’s equity performance is the breakdown of DXY and EURUSD equity correlations, which seem to be defying every relationship that worked in 2011. It either bodes very well for equity strength, or more likely, a set up for a big equity fall. earnings warnings are proliferating enough to think the later is the more likely the case, and US equties will soon catch up with FX on the downside. algo circle-jerks can’t fluff the market to current levels forever
The euro will be supported soon by central bank intervention. count on it, as no one wants global equities to collapse along with it. bullish
“while US economic data keep surprising to the upside” Another blank statement supported by nothingness and gut feelings. What got this whole market jump going a few weeks back was the drop in first time UE apps. All subsequent data has done nothing to support the “recovery”.
yes the euro will fall farther. Long US banks.
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MarketBeat looks under the hood of Wall Street each day, finding market-moving news, analyzing trends and highlighting noteworthy commentary from the best blogs and research. MarketBeat is updated frequently throughout the day, helping investors stay on top of what's happening in the markets. MarketBeat lead writer Mark Gongloff spearheads the MarketBeat team, with contributions from other Journal reporters and editors. Have a comment? Write to marketbeat@wsj.com or write Mark at mark.gongloff@wsj.com.
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