Wednesday, March 11, 2015

Euro at a 12-year low against USD and heading lower. Are you trading this?

The euro is collapsing. It's currently at a 12-year low against the dollar and heading to parity.

The euro is not being made "harder to get." Prices are being set, but they're not being set by the ECB, they're being "set" by large European exporters attempting to keep market share. We have been saying this, here, IN THIS BLOG, all  along.

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9 comments:

Warren Mosler said...

I agree the chart says sell and technicals rule!

But how do exporters set the price of the euro vs the $?

To me it's a case of heading to the exits when someone yells fire in a movie theater, even though there is no fire and in fact the fire may be just outside the door... ;)

mike norman said...

If I'm Mercedes (Daimler) and I cut the price of my Mercedes sold in the US from $50k to $40k, that's effectively a 20% reduction in the EURUSD exchange rate. That's how it works. It's about price not quantity.

Warren Mosler said...

That price cut makes the euro stronger, not weaker, as the euro now buys more than before. That's called deflation, which is currency appreciation. Inflation- higher prices- is currency depreciation.
;)

NeilW said...

When did the Swiss stop being Euro buyer of last resort? Looks awfully like that is the pivot point to me.

mike norman said...

" That's called deflation, which is currency appreciation. Inflation- higher prices- is currency depreciation."

Exactly. Maybe I didn't make myself clear. The price cut was in dollars, to buyers in the USA. The dollar therefore buys more or as you say, it's "currency appreciation." The dollar has effectively risen.

In contrast the Germans are now receiving $40,000 for a car that perhaps has $40,000 worth of labor and materials in it. Before they were getting $50,000. That's the same as saying their cost has gone up and their currency buys less.

Warren Mosler said...

It means the same amount of euro buys more
��

mike norman said...

Well, no. Sorry. I think you are confused.

mike norman said...

By the way, did you see this?

CBO raises 2015 deficit estimate due to student loans, health programs

So, the deficit is expanding again. Are you going to adjust your "deficit is too small" bearish forecasts that you have been talking about for more than two years?

Warren Mosler said...

It's declining as a % of gsp and GDP has already ground lower each year even when supported by capex chasing high cost oil. That's over now and it looks like GDP is taking the consequential hit.