# The $ - how low will it go?



## Shaney (26 May 2007)

Playing and gambling in currency specuclation is a fools game - no doubt. But the dollar has suffered quite a slide in the last 8-10 months, but the question is - will it fall further? Some have speculated that it will fall as far as 1.50 and certainly with an impending interest rate hike in the next month, it will surely fall a little further but all the way to 1.50?

Anyone with a crystal ball?


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## room305 (26 May 2007)

Depends on your timeframe really. I took the opposite trade up until this week, closing it out as the EUR/USD hit $1.3420. I've reversed it now and would expect the slide to resume, hitting at least $1.37 at some point over the summer. I doubt we'll breach $1.40 until the Fed start cutting rates in the US which may be pushed back as far as late this year, early next year.

The G8 summit made no mention of the dollar's slide which is pretty much tacit approval and the Bundesbank have indicated that $1.40 they will become concerned if the slide breaches $1.40.

Don't be surprised by a dollar rally to $1.33 even $1.30 to really shake out the dollar bears. Certainly don't expect much in the way of dramatic reaction to the rate hike next week. Nobody gets run over by a bus they see approaching from two blocks away.


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## joe sod (26 May 2007)

i don't see it going substantially lower, the euro is not exactly a rock solid currency, the possibility is always there that some countries may pull out if unable to live with it. I think the dollar has run its course with the euro, however i think it will still depreciate against other currencies like the yen, the aussie and canadian dollars.


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## z108 (26 May 2007)

joe sod said:


> I think the dollar has run its course with the euro, however i think it will still depreciate against other currencies like the yen, the aussie and canadian dollars.



If the US dollar depreciates against the yen, the aussie and canadian dollars,  but holds its value against the euro , does this mean the euro will also depreciate against yen, the aussie and canadian dollars ?


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## room305 (26 May 2007)

joe sod said:


> i don't see it going substantially lower, the euro is not exactly a rock solid currency, the possibility is always there that some countries may pull out if unable to live with it. I think the dollar has run its course with the euro, however i think it will still depreciate against other currencies like the yen, the aussie and canadian dollars.



Dollar depreciation against the Yen would be a major reversal of a multi-year trend rather than a continuation of "more of the same".

For the US dollar to continue to depreciate against other major world currencies but not the Euro would imply either currency intervention by the ECB (a la PBoC and BoJ) or necessitate cutting interest rates.



			
				sign said:
			
		

> If the US dollar depreciates against the yen, the aussie and canadian dollars, but holds its value against the euro , does this mean the euro will also depreciate against yen, the aussie and canadian dollars ?



Not necessarily but it is hard to envision it happening any other way. Look at the Euro/Yen or Euro/Yuan for example.


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## tyoung (26 May 2007)

I think the dollar is overvalued against the yen yuan and the Middle Eastern currencies but is being supported by official capital flows recycling current account surpluses back into dollar assets. This is a managed market.
 In theory the dollar should fall against these currencies but in practice the only other freely traded large currencies are the Euro and the Pound. So dollar weakness tends to cause strength in the Euro and Pound.
 To me the dollar looks at at least fair value to the Euro. I think the pound is way overvalued.
Eventually the dollar will take a big hit against the surplus currencies but I've been saying that for quite awhile.


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## rock3r (28 May 2007)

AFAIK, the ECB is not opposed to 1.50 or even 2 dollars to the Euro, so long as it happens gradually and without sharp hikes in either direction.


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## room305 (28 May 2007)

rock3r said:


> AFAIK, the ECB is not opposed to 1.50 or even 2 dollars to the Euro, so long as it happens gradually and without sharp hikes in either direction.



Is this a matter of policy or has it been intimated to you personally?


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## Sunny (28 May 2007)

rock3r said:


> AFAIK, the ECB is not opposed to 1.50 or even 2 dollars to the Euro, so long as it happens gradually and without sharp hikes in either direction.


 
Never heard that before. Have heard leaks saying as Room 305 says that they would be concerned at $1.40.


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## rock3r (28 May 2007)

Trichet's on record as saying the rise of the euro vs dollar shouldn't be "brutal". But his point is: while the ECB will intervene to cause a partial rebound after the dollar falls five cents in a week, this is not expected to reverse or stop the inevitable decline in the dollar. Until the balance of payments starts to break even, the dollar's falling. The ECB's job is to keep the falls slow and measured so that businesses on both sides of the Atlantic can adapt to survive the change.

The fact is, if the USA merrily continues spending more than it earns, the dollar will be pushed down with more force than the rest of the world's central banks can continually resist.

The British lost 10 billion pounds trying to prevent the inevitable crash.

The fact that the USA is running twin deficits is the big deal. The Asians have bought up trillions of dollars, sacrificing massive wealth by foregoing far more lucrative investments.

The well is not bottomless.


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## room305 (28 May 2007)

rock3r said:


> Trichet's on record as saying the rise of the euro vs dollar shouldn't be "brutal". But his point is: while the ECB will intervene to cause a partial rebound after the dollar falls five cents in a week, this is not expected to reverse or stop the inevitable decline in the dollar. Until the balance of payments starts to break even, the dollar's falling. The ECB's job is to keep the falls slow and measured so that businesses on both sides of the Atlantic can adapt to survive the change.



You really must know Trichet very well to speak so confidently on his behalf. When you say the ECB will "intervene", how exactly do you propose they will do this?

Also, do you really mean "balance of payments" here as BoP is negative for the EU area as well as the US. The balance of trade between the EU and the US is virtually flat.


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## rock3r (28 May 2007)

So, your reading of the crystal ball is the the USD will go no further than 1.4 to the yoyo, regardless of what happens with the twin deficits. I disagree: I think that the USD is a vehicle going down a very sttep hill, the engine pushng it down, other than gravity, is the twin deficits, and the ECB has no more role than that of a handbrake.

If you're right, 1.4 will be a brick wall beyond which the USD will permanently change course. If I'm right, the ECB will make a few interventions, but ultimately will not expect to prevent the USD going to 2 per Euro while the twin deficits are in place.

Time will reveal all, rhetoric can only hope to conceal temporarily.


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## room305 (28 May 2007)

rock3r said:


> If I'm right, the ECB will make a few interventions, but ultimately will not expect to prevent the USD going to 2 per Euro while the twin deficits are in place.



What do you mean by "interventions"?


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## joe sod (7 Jun 2007)

*spain in trouble*

http://www.dailywealth.com/archive/2007/jun/2007_jun_05.asp

Just read an article posted above, about the big problems for the spanish economy. Spain has the largest current account deficit in the world after the united states and this is in absolute not per capita terms. It is predicting a collapse on property prices there and a full blown recession. The reason for all this the euro and spains inability to live with it. The rising interest rates now after years of ultra low interest rates are crippling spain


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## room305 (7 Jun 2007)

*Re: spain in trouble*



joe sod said:


> http://www.dailywealth.com/archive/2007/jun/2007_jun_05.asp
> 
> Just read an article posted above, about the big problems for the spanish economy. Spain has the largest current account deficit in the world after the united states and this is in absolute not per capita terms. It is predicting a collapse on property prices there and a full blown recession. The reason for all this the euro and spains inability to live with it. The rising interest rates now after years of ultra low interest rates are crippling spain



... and this will cause the dollar to fall how much? ;-)


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## rock3r (7 Jun 2007)

It'll fall continuously, but slowly, until the twin deficits are reversed. Broadly speaking, it's unlikely to ever fall much more than two cents per month on average in any given year, as the ECB and perhaps other players will intervene in the markets to strengthen the dollar if it falls more sharply.

But there is no floor to this. If the twin deficits continue until 2030, there could easily be 3 or 4 or 5 dollars to the euro. 

There is a certain temptation for the US government for the dollar to continually weaken: it makes paying their domestic bills cheaper. US exporters have been doing well of late, and their unemployment has been worse.


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## MrKeane (7 Jun 2007)

*Re: spain in trouble*



room305 said:


> ... and this will cause the dollar to fall how much? ;-)


 
It could cause the dollar to appreciate. Right now the Euro is viewed as an alternative to the dollars traditional position as the global currency. If people go cold on the Euro then the dollar will be king again.

The reality is nobody knows where currencies are going to end up.


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## room305 (7 Jun 2007)

rock3r said:


> It'll fall continuously, but slowly, until the twin deficits are reversed. Broadly speaking, it's unlikely to ever fall much more than two cents per month on average in any given year, as the ECB and perhaps other players will intervene in the markets to strengthen the dollar if it falls more sharply.



How do the ECB intervene in the market? Does Trichet have a special dance he does or something? Is Weber let loose in the FOREX pits with sacks of freshly minted ECB cash? I think we deserve to be told.



rock3r said:


> But there is no floor to this. If the twin deficits continue until 2030, there could easily be 3 or 4 or 5 dollars to the euro.



There is no trading deficit between the US and the EU. The US only really has trading deficits with China and Japan. At five dollars to the Euro you can guarantee we'll be the ones worrying about our trading deficit with the US.



rock3r said:


> There is a certain temptation for the US government for the dollar to continually weaken: it makes paying their domestic bills cheaper. US exporters have been doing well of late, and their unemployment has been worse.



True. Although it pushes up the price of their imports. However, their unemployment statistics are a joke. The secretive birth/death model employed by the BLS has more double counting and spurious assumptions than Dick Roche's voting register.


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## Sunny (7 Jun 2007)

room305 said:


> True. Although it pushes up the price of their imports. However, their unemployment statistics are a joke. The secretive birth/death model employed by the BLS has more double counting and spurious assumptions than Dick Roche's voting register.


 
 So thats where he got his ideas from!


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## room305 (8 Jun 2007)

Having sold half of my position prior to the ECB rate announcement I am now adding to my EUR/USD long. I think we'll bounce from $1.34 to at least $1.37 maybe further.


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## joe sod (10 Jun 2007)

*Re: spain in trouble*



room305 said:


> ... and this will cause the dollar to fall how much? ;-)


 
Just pointing out that the euro is not exactly rock solid, the more the dollar falls against it the more questions are going to be asked of it. I don't think the dollar has much further to fall against the euro, spain and italy are the achilles heel of the euro.


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## MrKeane (12 Jun 2007)

The €/$ is now testing 1.33, next support level 1.31, its in a strong downtrend since around the end of April.


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## room305 (13 Jun 2007)

MrKeane said:


> The €/$ is now testing 1.33, next support level 1.31, its in a strong downtrend since around the end of April.



Yeah, I came very close to being stopped out and probably will be soon. Bond selling madness continues, with the US 30-yr breaching 5.3% and the 10-yr breaching 5.26%. The media continues with its inflation obsession and "inflation will force the Fed to raise rates" ignoring the fact that core-PPI is back in the so-called "comfort zone" of 2%yoy. Must surely be entering bargain terroritory now given how vastly oversold they are. Although China and other FCBs remain a wildcard (i.e. will they start buying again or will they sell their existing holdings?)


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## joe sod (17 Jun 2007)

room305 said:


> Having sold half of my position prior to the ECB rate announcement I am now adding to my EUR/USD long. I think we'll bounce from $1.34 to at least $1.37 maybe further.


 
Anyone betting that the dollar is going to continue falling against the euro and is prepared to bet their money on it would want to think really hard. From what Im reading the dollar has bottomed against the euro and is going to start rising again. What could cause a sharp fall in the euro are the big problems in spain which could cause a loss in confidence in the stability of the euro. Also the british pound is now way overvalued against the dollar and alot of currencies around the world. As regards interest rates if the euro falls it will give the ECB more ammunition to keep raising interest rates


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## MrKeane (18 Jun 2007)

joe sod said:


> As regards interest rates if the euro falls it will give the ECB more ammunition to keep raising interest rates


 
If the Euro interest rate keeps rising that in itself will give the currency support as it becomes a juicier carry trade.


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## room305 (18 Jun 2007)

joe sod said:


> Anyone betting that the dollar is going to continue falling against the euro and is prepared to bet their money on it would want to think really hard. From what Im reading the dollar has bottomed against the euro and is going to start rising again.



Well I want to try and take the opposite trade of the consensus view if possible. So far the trade has worked out well, having come close to being stopped out I'm now comfortably in profit.

I think the "higher rates" scare is over. The Fed will not raise their short term rates. If China continues to diversify out of treasuries we might see rising longer term rates with knock-on effects for the stock market but I don't think this will provide much support for the dollar except briefly.

It's funny how people think. For years I was reading how China's diversification out of their dollar holdings (well dollar denominated treasury holdings) would signal the death knell for the US dollar. Now it is actually happening I keep reading now how this same action will now support the dollar.


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## tyoung (18 Jun 2007)

Stephen Jen of Morgan Stanley has been the most accurate of the mainstream currency analysts on the dollar. Whether this is luck or skill I don't know.This is his most recent piece published Friday(second article).

http://www.morganstanley.com/views/gef/index.html#anchor50

Basically he sees the dollar strengthening against the euro and continued Yen weakness for the present.

*Summary and conclusions*
We are refreshing our currency forecasts.  While keeping our view on EUR/USD and USD/JPY essentially unchanged (EUR/USD to trade below 1.30 and USD/JPY to eventually break lower in 2008, conditional on several assumptions), we are revising up our forecasts for the commodity currencies (AUD, NZD and CAD).  We believe that the global economy will continue to benefit from trade and financial globalisation.  While there may be sporadic inflation scares, we foresee an essentially ‘Goldilocks-like’ global environment.  As a result, we expect risk-taking to resume after the bond markets stabilise, and continue to believe that emerging markets (EM) should, in general, be well placed to outperform. 

*Bottom line *
  We believe that the dollar should reassert itself as the US economy accelerates.  EUR/USD and cable should fall.  We are patient on the JPY call, and anticipate that an outperforming Nikkei will support the JPY by this autumn.  We now believe that the AUD, NZD and CAD can continue to do well, as a derivative of a buoyant Chinese and global economy.


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## Protocol (10 Jul 2007)

The dollar fell again today, and the euro broke past its previous high.  It broke through the $1.37 mark today.

I wonder where will this end?  Surely it's hitting euro exporters hard?


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## shnaek (11 Jul 2007)

Have a read of this article by David McW:

[broken link removed]

The dollar could go quite low yet!


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## room305 (11 Jul 2007)

Given the media attention the dollar is now receiving I have closed my EUR/USD long position and will be looking to open a EUR/USD short position if a decent opportunity arises in the next few days.


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## superstar (11 Jul 2007)

I've just been reading comments re the dollar/euro and am just wondering if i should convert my euros into dollars now or wait a while for a shopping trip at Christmas!!


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## z109 (11 Jul 2007)

Indeed, I was also wondering if I should do my Amazon (US) shopping now rather than closer to Christmas?


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## Guest120 (11 Jul 2007)

If anyone could tell you the answer to the last two questions then they would be very rich people.

No body will be able to give you a definitive answer.


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