The Euro/$ Adjustment Is Over, Target Achived

[The Eagle]

Like I said a few days ago, this was all one big staged show, I expected it stop lower at 1.10-1.15 though.

The purposes were to make the German exports more competitive globally again and to scare the other euro-countries into accepting the new penalties outlined by Merkel today, which effectively create an economic union among the euro-countries.

So the operation seems a full success for Germany, Germany's power over all of Europe will greatly increase and the German economy will get a boost.

http://www.bloomberg.com/apps/news?pid=20602081&sid=aGv0Uq6O0QfM

May 19 (Bloomberg) -- The euro’s current level is close to an “equilibrium” value and its decline to the weakest in four years against the dollar may help Europe’s exports, the International Monetary Fund’s No. 2 official said.

“The current level of the euro does not appear to pose problems,” IMF First Deputy Director John Lipsky said in an interview in Tokyo today. “The euro is rather close to what we would consider equilibrium value after an extended period at which it traded above that value.”

Lipsky’s comments indicate little threat to the euro- region’s economy from the currency’s 18 percent slump in the past six months. Spain’s Deputy Finance Minister Jose Manuel Campa said today that the decline will “probably” have a positive impact on his nation’s economy, while causing energy costs to increase.

“It’s perhaps easy to forget the euro, when it was created, debuted at a value of $1.17,” Lipsky said. The currency is “not so far away from where it started,” he added.

The currency shared by 16 European Union countries has tumbled in five of the past six weeks on concern the region is failing to contain a debt crisis that began in Greece. It traded at $1.2205 at 12:42 p.m. in London, down 24 percent from the record high it reached in July 2008. The EU set the initial exchange rate for the euro at $1.16675.

Goldman Sachs & Co. Chief Economist Jim O’Neill said today that the euro’s slide has erased the currency’s “overvaluation.”

‘Incalculable’

The currency fell today after Germany banned speculators from some bets against government bonds and banks. The euro’s existence is at risk and the EU may be facing its greatest challenge with “incalculable” consequences if leaders fail to act, German Chancellor Angela Merkel told lawmakers in Berlin today.

Lipsky declined to comment directly on the ban by Germany’s financial regulator, while saying that “placing barriers to market participation should be done with great caution.”

The IMF official, a former chief economist at JPMorgan Chase & Co., also said that the European Central Bank’s decision last week to start buying government bonds was “highly timely” and that the purchases should be temporary.

Yields for Spanish, Portuguese and Greek bonds, which surged to euro-era highs this month, have stabilized since the ECB started purchasing debt last week. The extra yield that investors demand to hold Portuguese debt over bunds, which surged to 354 basis points on May 7, was at 178 basis points today. As of May 14, the ECB’s purchases totalled 16.5 billion euros.

“It strikes me that the ECB’s action was highly timely and important in helping to stabilize and calm markets at a time of great uncertainty,” said Lipsky. “At the same time, we should take the ECB at its word that it intends for these interventions to be temporary.”

Edited May 19, 2010 by wise_eagle

[Toto deVeer]

Perhaps, but it all depends upon whether the people, especially the German people, will accept it. And then it depends upon whether the market believes anyone in Europe will follow it (further political and fiscal integration, I mean)

Top down without the consent of the people, I still think that Europe is about a fragile as the USSR was in 1989...

That Merkel's a little coquette; I fancy her...

Edited May 19, 2010 by Toto deVeer

[indirectapproach]

No one is stressed about the current value of the euro.

The recent rate of decline is a concern.

Hopefully this will turn out to be more a worry than a real problem.

But the very real problem is the lack of attention to the underlying structural weaknesses of a deluded euro elite, waste, fraud and mediterranean ill-discipline.

[The Eagle]

But the very real problem is the lack of attention to the underlying structural weaknesses of a deluded euro elite, waste, fraud and mediterranean ill-discipline.

that was just a good excuse they used to trigger this swift devaluation. Structural weaknesses in Greece have been around for a long time and they are everywhere (UK, US, Japan) once the focus shifts somewhere else Greece will be forgotten again (until they need an excuse for another swift realignment or some other market manipulation).

Edited May 19, 2010 by wise_eagle

[interestrateripoff]

Wow has this fixed all the unsustainable debt that's been acquired. Don't these things tend to overshoot?

[The Eagle]

Wow has this fixed all the unsustainable debt that's been acquired. Don't these things tend to overshoot?

I expected it to overshoot to 1.10. and then stabilise around 1.15-1.20, but right now it appears that it's stabilised already and that message from the IMF director seems a thinly veiled message to the markets that the target has been reached.

We'll see in the next few days.

Edited May 19, 2010 by wise_eagle

[Bloo Loo]

I guess sterling was part of the plan too.

whats next?

[The Eagle]

I guess sterling was part of the plan too.

whats next?

If I could predict the future I wouldn't be posting here...

[moneyscam]

I expected it to overshoot to 1.10. and then stabilise around 1.15-1.20, but right now it appears that it's stabilised already and that message from the IMF director seems a thinly veiled message to the markets that the target has been reached.

We'll see in the next few days.

Fed and SNB have been buying Euro today, check out EUR-CHF chart for today - http://www.dailyfx.com/charts/netdaniachart/index.html?symbol=EUR/CHF

Difficult to judge where Euro will stop when CB's are directly intervening - every SNB intervention has failed to keep CHF weak against Euro though

Edited May 19, 2010 by moneyscam

[R K]

I guess sterling was part of the plan too.

whats next?

Dollar starts looking 'over valued' and starts to sell off again of course. Eussros and sterlings get bid up again for a couple of months.

[Realistbear]

Read that there has been intervention this afternoon. The Euro bounced back above 1.23 briefly but it appears to be sinking again (how much does the ECB have to buy Euros against the headwinds?):

1.23119

[Toto deVeer]

Read that there has been intervention this afternoon. The Euro bounced back above 1.23 briefly but it appears to be sinking again (how much does the ECB have to buy Euros against the headwinds?):

1.23119

Dollar swaps.

And for those Americans who thought they weren't going to be involved in the bailout; well the FED has just outflanked Congress again, via exchange rates...

Don't ya just luv those banksters...

[interestrateripoff]

I expected it to overshoot to 1.10. and then stabilise around 1.15-1.20, but right now it appears that it's stabilised already and that message from the IMF director seems a thinly veiled message to the markets that the target has been reached.

We'll see in the next few days.

Do the markets listen to the IMF?

If the Euro remains at around 1.20 does that mean Germany can now afford to bailout Greece, Spain, Portugal etc....

Does the Euro at 1.20 mean Greek debt is now affordable?

[interestrateripoff]

Read that there has been intervention this afternoon. The Euro bounced back above 1.23 briefly but it appears to be sinking again (how much does the ECB have to buy Euros against the headwinds?):

1.23119

Read that.

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7740464/German-shorting-ban-triggers-global-share-sell-off-but-euro-rallies-on-intervention-talk.html

The euro, which has been volatile, spiked more than than a cent against the dollar to above $1.23 at 2pm on rumours that the Swiss National Bank or European Central Bank had entered the market.

"Euro is popping all over as talk is going around that the ECB may be considering intervention," said Brian Dolan, chief strategist at Forex.com in Bedminster, New Jersey.

"It looked like the Swiss were in earlier, though that hasn't been confirmed, so we're left to speculate. But the market is exceptionally short euro, and with it bouncing today, the wind would be at their back."

The single currency hit a fresh four-year low of $1.2144 in Asian trading before edging higher. It also suffered another shock around 8.45am when Angela Merkel, the German Chancellor, said the "euro is in danger" and called for a radical overhaul of Europe's fiscal rules along German lines.

So it's either the Swiss or the ECB.

Is the Euro also falling against the Eastern bloc countries that heavily borrowed in it?

[Toto deVeer]

Do the markets listen to the IMF?

If the Euro remains at around 1.20 does that mean Germany can now afford to bailout Greece, Spain, Portugal etc....

Does the Euro at 1.20 mean Greek debt is now affordable?

And are they all going to sign up to the contract?

[indirectapproach]

"that was just a good excuse"

I don't think so. If a simple revaluation was the objective it would have been far more seemly to lower the euro interest rate, which is too high anyway.

And wasn't the Greek crisis "triggered" by a regrading of its debt by one of the rating agencies?

The running dogs of anglo-saxon speculators.

We all have our problems, absolutely but the euro is the only one that has the problem of having had the temerity to dream of replacing the dollar as the world's reserve currency.

[Peter Hun]

that message from the IMF director seems a thinly veiled message to the markets that the target has been reached.

Nobody gives a Flying **** what an IMF director says, or any other individual for that matter. His comments carry as much weight as mine do.

[indirectapproach]

Errr ... I'm awfully sorry about this but an IMF director's comments do carry a little bit more weight than yours. At least as far as I am concerned.

[scepticus]

We all have our problems, absolutely but the euro is the only one that has the problem of having had the temerity to dream of replacing the dollar as the world's reserve currency.

there won't be a next world reserve currency.

[indirectapproach]

As the case may be but it doesn't look like that bright idea to trade oil in euros is gonna take off.

[scepticus]

As the case may be but it doesn't look like that bright idea to trade oil in euros is gonna take off.

why not?

[indirectapproach]

Because the French threatened to walk out unless the Germans paid and the Germans said they would but now they won't.

[scepticus]

Because the French threatened to walk out unless the Germans paid and the Germans said they would but now they won't.

yeah but that was just today.

[The Eagle]

there won't be a next world reserve currency.

I've fixed your statement.

[The Eagle]

Nobody gives a Flying **** what an IMF director says, or any other individual for that matter. His comments carry as much weight as mine do.

With all due respect Sir, but you are wrong on both points.

Edited May 20, 2010 by wise_eagle