Euro Me

[nacho]

So, let's talk Euro.  It's all the buzz now that the dollar is finally, seriously dying. 

So, with the new year, Bulgaria and Romania joined the EU.  Which, first of all, means that all of you non-traveling shut-ins have missed the weird, edge of the world opportunity of a lifetime.  Slovenia has now gone Euro, and they've made themselves strong over the past few years.  They've worked overtime to get on the currency and fucking add to the surge. 

This means that that the EU is now, seriously, on a level that makes it just about the most amazing collection of people in history all bent on one cause:  The total annihilation of the lifeform known as Dollar.  Not only is it a shining light of extraordinary integration, it's created a currency that's dancing on our grave. 

Monkey, you're our eye in the sky over there in Yoorope.  In your thinking, what are the EU's boundaries?  What role will the new Putinic Soviet Union play?  Armenia polls say three quarters of their population wants to join, so they're about to apply.  And that means the EU is about to enter into the Russian sphere.  And what happens when the EU absorbs a Muslim country (Turkey)?  What are the boundaries then?

And can the weird-ass EU government manage to hold on?  The Euro is the only thing really keeping the EU together.  If the European constitution/parliament can't pull itself together and adequately represent all of the countries, there'll be problems.  I see the EU crumbling the first time it faces a proper crisis.  Is it meant to even work that way, or is it more of a sort of NATO thing?  And if that's the case, what happens when some yahoo does make a crazy hit against, say, an EU Armenia or Turkey or Balkan country and things go to shit?  Will prejudiced neighbors or out of touch northerners/westerners want to weigh in to help out?  Is the EU just another, more confederated version of failed European empires?  Separatism is not dead -- and those agitating ethnic separatists in various countries are not well represented.

And if the EU hits a serious bump, or starts to flake apart, or does not weather a crisis well, what happens to the Euro?  Any bump in the road derails it, no?  And shoots everything back to America, as the US is proven to manage through crises.  This is not the first time the Dollar has gotten fucked.  This is not a unique time in our financial history.  The Euro is very strong, and getting stronger…but it’s also very young, and unproven.

[monkey!]

Monkey, you're our eye in the sky over there in Yoorope.

Hello, you're with Monkey, your Eye-In-The-Sky!

Essentially, the EU faces horrible arguments and strife everyday - because every country wants the EU policies to work in favour of their own domestic schemes, which generally means that The U.K., Germany and France get what they want, and then consider everything after that.

The most important thing about the EU is trade/emigration sharing - if I wanted to emigrate to France or Germany, or anywhere else in the EU, I don't even need a passport or any permission. The EU is kind of a free-trade/free-movement union agreement.

The role of the Euro is to enforce this, and supply a unified economic front in the world market. It also makes the weaker countries more reliant upon the stronger countries [who subsidise them heavily].

So, The E.U. and the Euro [if it keeps strong] will be a future superpower [America's already on its way out, economically]. Europe and China.

Roast Beefs, Frogs and Nazi's versus the Gooks.

[nacho]

The rose-tinted reply.  Now, answer some of my questions.

[monkey!]

Rose tinted?

I really can't be bothered writing any more on this.

[Tatertots]

Yeah! Back to one-word female genitalia replies!

[monkey!]

Labia!

[Cassander]

wtf iceland?  Get with the program!

[Nubbins]

Countdown until Bush announces a plan for an American universal monetary system. 

The 'mero?  Merico? 

It'll be us and Canada and Puerto Rico.

[fajwat]

the gringo.  (the new paper currency will not be green)
the new world currency (available in new world money orders)
the panamerican dollar (raining fire on Scotland and the UK!)

[monkey!]

The Pound Sterling will reign supreme!

[nacho]

I still want my questions answered.

[fajwat]

Euro will likely stay past disintegration of EU, should that ever happen.  Some (probably smaller) countries may diverge their currencies individually but

[nacho]

If the EU goes, the Euro goes.  That's like saying the dollar will survive the disintegration of the US.

[fajwat]

Yes, the dollar would.  But the EU would have a stronger chance to officially survive.

[nacho]

And big dollar news from the weekend:

NEW YORK (Reuters) - The last time the U.S. dollar slid to a record low against the euro it quickly recovered, but this time may be different.

The dollar slid to a new record low against the euro on Friday, with the euro quoted above $1.3680, the highest since the currency's launch in 1999.

When the euro climbed above $1.36 in 2004, it limped above that level for five days, and then embarked on a year-long decline.

But unlike late 2004, when the Federal Reserve was in the early stages of a two-year rate rising cycle which provided some support for the dollar against the euro, U.S. economic growth is now slowing and the Fed may even cut interest rates later this year.

At the same time, economies in the Europe and Asia seem to be weathering the U.S. slowdown well, suggesting that interest rates in those regions may continue to move higher, drawing yield-hungry investors away from the dollar.

"I think we're going to see $1.38 (euro/dollar) without too much trouble here," said Joseph Trevisani, chief market analyst at FX Solutions, an online currency dealing platform based in Saddle River, New Jersey.

The immediate trigger for the dollar's fall on Friday was a report showing that the U.S. economy grew at its most sluggish pace in four years during the first quarter.

But the writing had been on the wall for months now, as the dollar's appeal to yield-hungry investors was on the wane.

Two-year U.S. Treasury notes (US2YT=RR: Quote, Profile, Research are yielding just half a percentage point more than government debt of the same maturity in the euro-zone, the lowest interest rate differential since late 2004, and well below a peak of around 1.8 percentage points in the middle of 2006.

By contrast back in late 2004 differentials were actually widening in the dollar's favor as yields on euro-zone debt were falling on worries that the strong euro would strangle the European economy.

In 2004 Jean-Claude Trichet, head of the European Central Bank, was also warning that the euro's rise was "brutal" and "unwelcome", a signal that it could be risky to chase the currency higher.

In contrast euro zone officials appeared almost nonchalant on Friday. The Eurogroup's Jean-Claude Juncker said he was not concerned about the level of the euro, which has also hit repeated record highs against the yen in recent weeks.

THAT WAS THEN, THIS IS NOW

And the contrast with 2004 does not end there. This time around the market appears to have greeted the euro's spike to a fresh record high with a big yawn.

One-month implied volatilities on euro options were trading around their lowest level in 5 months on Friday.

At just above 5 percent, volatility is little more than half the level that is was in late 2004.

Many analysts reckon that the dollar's slow but steady grind lower is set to continue. Slowing growth and the prospect of lower interest rates is likely to rekindle concerns about the United States' ability to finance its gaping current account deficit, which requires $2 billion a day to plug.

Over the coming three to six months, the euro looks on course to rally to $1.40 or higher, said Nick Bennenbroek, head of currency strategy in New York for Wells Fargo.

Stubbornly high readings on inflation are another reason to bet against the dollar, some investors reckon.

"Growth is slowing and inflation is rising. The Fed cannot raise rates because growth is slowing ... that's negative for the dollar," says Bill Lipschutz, portfolio manager at Hathersage Capital Management, a currency hedge fund.

The implicit price deflator, one gauge of inflationary pressures in Friday's GDP report, jumped at a 4.0 percent rate in the first quarter, the biggest jump since early 1991.

This week the dollar fell to its lowest level ever against a basket of major currencies tracked by the Fed since 1973.

However the dollar's decline has been unevenly distributed. Since a peak in mid October it has fallen 9.5 percent against the Australian dollar, 8.0 percent versus the euro, 7.0 percent against sterling, but is virtually flat against the yen.

Some longer-term investors say the dollar's sharp decline is starting to make it look attractive again against European currencies like the euro and sterling.

"Let's face it, the dollar has had a good sell-off, but in terms of valuations it is now looking to be one of the cheaper currencies out there," says Roddy Macpherson, investment director of global strategy at the UK-based Scottish Widows' Investment Partnership, which oversees $200 billion of funds.

Macpherson says he reckons the dollar is around 20 percent undervalued against the British pound and the euro.

But most shorter-term investors don't have the stomach to bet on a dollar rebound just yet, especially ahead of some blockbuster U.S. data releases next week, including readings on inflation and a monthly jobs report.

More weak data "would effectively give a "green light" to continue selling USDs and quite likely the catalyst to break above the 1.3700 threshold in the EUR/USD," said Michael Woolfolk, senior currency strategist at Bank of New York.