Hello fellow traders. Checkout this interesting forex news blurb:
The euro may surge to $1.40 for the first time in 11 weeks on the European Central Bank’s reluctance to match the Federal Reserve in buying government debt, before falling toward $1.20 later this year, UBS AG said. The euro rose yesterday the most against the U.S. dollar in almost nine years and the Standard & Poor’s 500 index jumped to a one-month high after the Fed said it will purchase $300 billion of longer-term Treasuries. “Expect the euro to keep overshooting for now with euro- dollar back toward $1.40,” Mohi-Uddin wrote. “The return of investor risk aversion and all the major central banks embracing quantitative easing will cause safe haven seeking flows to resume and push the U.S. dollar higher back toward its long-term fair value of $1.20 this year.
The rally that pushed the dollar to the highest levels since 2006 is in danger of crumbling as the Federal Reserve starts buying Treasuries and ramps up its purchases of mortgage debt, adding to a flood of greenbacks. “The implications of today’s Fed decision are unambiguous,” currency strategists at Citigroup Inc. wrote in a research report within a half hour of the Fed’s decision yesterday. The dollar “should weaken,” they said. Fed policy makers said yesterday they plan to buy as much as $300 billion of U.S. government bonds and step up purchases of mortgage bonds, expanding the central bank’s balance sheet by as much as $1.15 trillion. The extra supply of dollars threatens to overwhelm investors just as the budget deficit swells.
What do you think? Will the Euro fly towards 1.40? I’m not sure, but I hope it does as I’ve got long positions since 1.29xx and 1.40 will bring me a delicious profit 🙂
As for the Euro falling later on in the year to 1.20, I’m not so sure. Fundamentally speaking I think inflation will kick in sooner or later and investors will drop the dollar like a hot potato. I do not trust the government’s inflation figures (I believe they are doctored) and besides all this money printing the Fed is engaged in clearly can’t be good for the dollar. I suppose though in the end the fate of the dollar relative to the euro will depend on whether the ECB engages in the same government bond buying schemes or starts with that economics voodoo known as “quantitative easing” (hint: the Fed is already engaged in quantitative easing).
Don’t know what quantitative easing means? Check this out:
http://en.wikipedia.org/wiki/Quantitative_easing
Hint: It means PRINTING MONEY OUT OF THIN AIR. Lovely, isn’t it – don’t you wish you could do that too?
Anyways, like I said if the ECB doesn’t play the same game as the Fed or plays it on a smaller scale I don’t think we’ll be seeing EUR/USD at 1.20 again – maybe 1.60 is more like it?? Have a seat and keep an eye on the charts as things are about to get interesting yet again.
Happy trading everyone, and I hope you bag lots of pips.