Re: [OpenFX] The Way of the Euro: Oil, Interest Rates and the EUR

Clay,

In case this slipped by people, Moodys downgraded Greek bonds last night to B1 which is low for government bonds. Worse their longer term prognosis was pretty negative. According to them, the ECB/IMF QE didn't do anything for them. They project default in 2012 or 2013.

AHF

--- On Sun, 3/6/11, clay@claymarafiote.com <clay@claymarafiote.com> wrote:

From: clay@claymarafiote.com <clay@claymarafiote.com>
Subject: [OpenFX] The Way of the Euro: Oil, Interest Rates and the EUR [1 Attachment]
To: openfx@yahoogroups.com
Date: Sunday, March 6, 2011, 1:55 PM

Hi Traders,

Something to consider:

The German economy is doing well but, with it, CPI is rising, too. "Inflation" has reared is head and Germans are asking for pay increases as commodities have been surging. Certainly, oil has been parabolic. In 2008, a similar situation occurred with oil reaching $140 per barrel and a panicky ECB increased interest rates in July that year to fight inflation. THEN, the "financial crisis" hit hard and the ECB cut rates and the euro tanked (see the attached chart).

Oops. Hmmm...

Well, if commodities keep rising, this could really create rampant inflation in Germany, and the ECB just said it's going to hike rates. Will they do this the wrong time... again?

While the '08 financial crisis is old news (kind of), Europe has just a big a problem with its PIIGS . Sure, higher interest rates make sense in Germany, but what about the slowly dying economies in Portugal, Italy, Ireland, Greece and Spain? Are higher interest rates a good thing for them? Not so much; this would/will likely put a bullet in their collective little piggy heads.

So, while higher interest rates should help the euro climb in the near team, if history repeats itself, in the longer term the euro stands to get butchered (again). With this in mind, you might want to keep your eyes open for a shorting opportunity. Again, take a look at the attached chart.

Good trading,

Clay