FYI | Nov 27 2007
By Rudi Filapek-Vandyck
For those with a short memory – and that probably includes all of us these days – the currency specialists at SVB Asset Management have lined up the movements of the US dollar since early calendar 2007.
Can anyone actually remember seeing the euro at 1.28 against the US dollar? Well, that was the level the European currency traded at some eleven months ago, only to reach a high near 1.48 last month. Over the same timespan the GBP has traded between 1.90 and 2.11, but it was the CAD that led the charge, trading from 1.18 to a low of .9050, an astounding 23% change in value.
At FNArena we vividly remember the discussion amongst economists whether the Aussie dollar could possibly reach as high as 0.80 – and whether that would prove to be the pinnacle for the currency. The fact that an increasing amount of press reports has been mentioning a potential parity with the greenback since then is probably the best indication that the Aussie has done much better than most experts were expecting in January.
But then again, SVB reminds everyone that even the most experienced currency gurus only manage to get it right about 60% of the time – so don’t be too hard on yourself if you didn’t see all this coming either.
Will 2008 bring more of the same? SVB seems to suggest the answer might be yes.
Technical chartists at Credit Suisse have relied upon their favourite charts which project 12% deviation in EUR/USD from its forty week moving average to identify what they call “extremes” – we would likely use a term like “potentially the farthest the euro can move up against the USD”.
The charts suggest the EUR/USD “extreme” lies at 1.54. Historically, it would appear the team’s favourite indicator has been correct quite a lot of times. Prepare for the euro at 1.54 then, and -often forgotten by commentators- the world’s second largest economic zone in disarray.
Other chartists have already pointed at the seemingly close and inverse relationship between a stronger euro and European share markets. Right now, share markets are projecting tough times ahead for European exporters.
Does this mean the European Central Bank will soon have to let go its hawkish stance? Investors seem to think so. First we will see rate cuts in the UK, then Europe will follow seems to be generally the dominant view.
But can the euro then still rise as high as Credit Suisse’s charts indicate?
It’s 60% yes against 40% no.
