the issue is if the EUR is correctly priced v. the USD and IMHO it is a bit over priced
Haim, let us keep in mind that currencies are rarely "correctly priced" in some Platonic PPP sense, and even then only by coincidence. they spend most of their lives either under- or over-priced. and we know from history that fiat currencies in free trade go from one extreme to the other.
there was the extreme where the euro (then known as the "zeuro") traded for 83 cents or so US. now it is back at a slight premium to its debut price. can we say that the USD is grossly underpriced, in comparison to the gross underpricing of the EUR at USD 0.83? no, this we cannot say...
if you look at what happens in the really big, long-term swings of the USD, it seems to me that the extremes are punctuated by some eventual coordinated action. this we can see in the Plaza Accords which marked extreme highs and lows for the USD on a multidecade basis.
it is my belief that the USD must enter a rather protracted and punishing bear market for various and sundry reasons, such as you will find described in Duncan's book on the subject.
my guess is that eventually there will be a multilateral attempt by the world's CBs to "save" the USD, much as they have done in the past. however, i think the USD will fall quite a bit further before such action is taken. i would ballpark such action at somewheres above EUR above 1.40 and JPY probing the 1995 highs (a low, low 8-handle, perhaps a 7-handle on the JPY).
and one situation which we didn't face in the mid-90s is that there is a lot of anti-USD sentiment among the Arabs due to the imperialistic tendencies of the US. perhaps they will withhold the disgrace of officially pricing their oil in EUR, but informal currency repatriation likewise has its price. and can we say that EUR oil will not happen?
until then, i think traders and the BOJ/MOF will take "pot shots" at, e.g., the JPY/USD cross, but i do not yet believe those actions will affect the primary trend, however profitable they may or may not be for short-term traders.
just my two JPY, AUD, NZD, CAD, GBP, EUR, and, oh yeah, USD cents. |
