The $ - how low will it go?

S

Shaney

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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?
 
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.
 
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.
 
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.
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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 ?
 
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.
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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 ?
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Not necessarily but it is hard to envision it happening any other way. Look at the Euro/Yen or Euro/Yuan for example.
 
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.
 
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.
 
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.
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Is this a matter of policy or has it been intimated to you personally?
 
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.
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Never heard that before. Have heard leaks saying as Room 305 says that they would be concerned at $1.40.
 
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.
 
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.
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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.
 
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.
 
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
 
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
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... and this will cause the dollar to fall how much? ;-)
 
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.
 
Re: spain in trouble

room305 said:
... and this will cause the dollar to fall how much? ;-)
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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.
 
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.
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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.
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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.
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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.
 
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.
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:) So thats where he got his ideas from!
 
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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