Forex Market Commentaries - Betting on Euro Collapse

Betting On A Euro Collapse? Don't Hold Your Breath, Or Your Position Trades

Nov 30 • Market Commentaries • 3438 Views • Comments Off on Betting On A Euro Collapse? Don't Hold Your Breath, Or Your Position Trades

If you’ve had a few bad trading experiences lately then you may want to spare a thought for FX concepts who are apparently the largest currency hedge fund on the planet. It’s been obvious for most of this year that this predatory hedge fund bet that their ’tills would ring’ if a Euroland collapse leads to a Euro currency collapse.

Each time the euro rises through the next round of the crisis the hedge fund head gets all hot under the collar and air time opining that the Euro is in a “death spiral”. Unfortunately they haven’t accounted for the political will to retain the shared currency, or the fact that the greenback isn’t exactly prized as a safe haven asset either.

Whilst the dollar has experienced a recent surge, according to the Bloomberg weighted index, that can all be undone if, or more likely when, the next round of gargantuan Fed inspired quantitative easing takes place.

They (FX) are an organisation looking to profit from the destruction of the Eurozone and as a consequence the standard of living for millions, therefore not sparing a thought (or a dime) and being all out of sympathy is understandable. John Taylor, the head of FX concepts manages circa $5 billion from New York, he’s predicted several times since 2010 that the euro will fall to parity versus the dollar. The common currency rose 0.1 percent to $1.3333 at 10:50 a.m. in New York yesterday.

Last month talking to Bloomberg FX Concepts said; “What’s really frustrating is that we’re supposed to do well in a lousy world market.” They also revealed in an October interview in London that they’d lost 12 percent this year and assets under management fell by over a third to $5 billion from as much as $8 billion. “We’re doing very badly.”

Is it surprising that they didn’t anticipate the level of commitment to save the 17 nation shared currency? Even with a “bleak” outlook for the currency union surviving in its present form, the 17-nation euro is trading above its life-time average of $1.2044 because of debt purchases by the European Central Bank and European financial institutions repatriating funds. Taylor finishes by sharing his “hope” for a bleaker future for the Eurozone and its millions of citizens so his firm can profit from any collapse..

Banks are shrinking and selling all of their offshore assets and bringing them back to Europe and that means in fact, that there is a persistent buyer of euros, which is their own financial institutions. The outlook is bleak, but there’s always the hope that the bleaker it gets, the more the governments are going to wake up and do something.

Global equities fell for the first time in three days and U.S. stock futures slid after Standard & Poor’s cut credit ratings on lenders from Bank of America Corp. to Goldman Sachs Group Inc. Copper and oil declined. Stoxx Europe 600 Index sank 1 percent, the first drop in four days. S&P 500 Index futures dipped 0.8 percent. The euro weakened 0.3 percent against the dollar and decreased 0.2 percent versus the yen. Copper slumped as much as 2.2 percent and oil retreated from a two-week high in New York. The Dollar Index, which tracks the currency against those of six trading partners, rose 0.4 percent after retreating for two days. The 17-nation euro fell to $1.3270 and traded at 103.53 yen, compared with 103.77 yesterday.

Oil slipped as much as 0.8 percent to $98.96 a barrel in New York before trading at $99.09. Futures climbed yesterday to the highest level since Nov. 16 and are up 6.4 percent this month. Three-month copper dropped 2 percent to $7,342.25 a metric ton in London.

European heads of government meet on Dec. 9 in Brussels, Germany are pushing for governance changes that would tighten enforcement of budget rules. The move could make it simpler for the European Central Bank to play a bigger part in supporting euro-area nations, by channeling loans through the IMF, two officials familiar with the matter said yesterday.

Arnaud Mares, a Morgan Stanley analyst, wrote in a research note yesterday;

Should they fail to deliver a credible framework encompassing both these dimensions, we would expect that the ongoing ‘run’ on governments and banks will accelerate, and it is seriously to be feared that it can no longer be stopped. The economic, social and political consequences could be unfathomable. The next few weeks are therefore a critical moment in European history.

While leaders have said leverage would expand the 440 billion-euro ($584 billion) EFSF’s reach to 1 trillion euros, Chief Executive Officer Klaus Regling said it is “impossible to give one number” for the fund’s power.


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Market snapshot at 10:00am GMT (UK time)

Asian markets fell in overnight early morning trade the Nikkei closed down 0.51%, the Hang Seng closed down 1.46% and the CSI closed down 3.34% and is now down 19.62% year on year. The ASX 200 closed up 0.43%. European bourse indices have rebounded from their weak opening positions. The STOXX 50 is currently down 1.01%, the UK FTSE is down 0.55%, the CAC is down 1.06%, the DAX is down 0.83% and MIB is down 0.4%.

The euro fell 0.3 percent to $1.3284 at 8:57 a.m. London time after dropping to $1.3212 on Nov. 25, the weakest level since Oct. 4. The shared currency dropped 0.2 percent to 103.57 yen. The yen was little changed at 78.01 per dollar. The euro has declined 4.2 percent versus the dollar and 4.4 percent against the yen this month as speculation the sovereign debt crisis is spreading to the larger nations damped demand for the region’s assets.

The dollar gained 0.3 percent today, according to Bloomberg Correlation-Weighted Indexes, making it the biggest gainer among the 10 developed-nation currencies. The yen advanced 0.2 percent, and the euro weakened 0.1 percent.

Economic calendar releases that may affect the afternoon trading session

12:00 US – MBA Mortgage Applications 25 Nov
13:15 US – ADP Employment Change November
13:30 US – Non-Farm Productivity 3Q
13:30 US – Unit Labour Costs 3Q
14:45 US – Chicago PMI November
15:00 US – Pending Home Sales October
19:00 US – Fed’s Beige Book

The stand out releases could be the ADP employment numbers given they pre date the non farm figures on Friday and the Fed’s beige book.

A Bloomberg survey of analysts forecasts a figure of 130,000 employment increase, compared with last month’s 110,000.

The beige book report is useful as it allows investors to see what information the FOMC members will be basing their decision upon (and the information is unlikely to be more than two weeks old). The Beige Book does not offer insight into the FOMC members’ thoughts on the economy, however; it simply states facts regarding the economy in various regions of the US.

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