Depicted below please see a path of the relative valuations of the € versus the US dollar ($) since the October 2000 low:
As you can see, the € doubled in value against the US$ between October 2000 and July 2008. In that phase, America’s profligate debt bubble was compelling a retrenchment in relative values between the US$ and the €, and also across the board.
After July 2008, there began a series of seven major swings, in which traders slightly favored the US $ notwithstanding three iterations of quantitative easing by the Federal Reserve. Notwithstanding these programs, the markets were unable to devalue the dollar because it came to light that socialist governments at the eurozone periphery were no better disciplined than the US. On both sides of the Atlantic, politicians adopted a strategy to stay in power by offering bread and circuses to the voting public, and passing the cost thereof onto the unborn, who are being aborted as quickly as possible.
And thus there began, between the dollar and the Euro, an international ping pong match between the Federal Reserve program of quantitative easing, (which had been intended to devalue the US$ relative to other currencies), and the European Central Bank, which is now trying to combat a recession in the eurozone caused by the fact that when people are indebted and taxed into submission, they don’t spend money. And so, the European Central Bank has announced a plan to combat deflation by printing a trillion €s between now and September 2016. The ECB is going to start buying €60 billion/month.
Consequently, the €/$ has been a pretty reliable range trade between 1.20 and 1.40 over the past 6 years as the world has travailed under the management of arrogant men who really believe they can allocate wealth while their respective governments flood the engines of wealth creation with artificial capital.
Mark it: The problems which sparked the devaluation in the US$ between 2000-08 have only gotten worse. The GOP led US Congress just approved a 2015 budget for over a trillion dollars, and the US national debt is now above $18 trillion. We are getting to a point where almost 99% the world’s wealth is concentrated in the hands of 1% of the population, and guess what? They’re not spending it.
So what happens now? Clearly, the €/$ has been engaged in a hard, bearish retrenchment since last spring; thereby undoing all the devaluation efforts of the Fed’s preceding program of quantitative easing. Meanwhile, the lack of spending has led to a precipitous decline in the price of crude oil. And the thing is, even if the Saudis decide to decrease production in order to goose prices back above $50/bbl. the bottom line is that unless there are people ready to consume the oil we have, it’s going to be impossible to create any sustained increase in commodities prices.
Obviously the solution is that real people need to be released from the paralysis of fifty years of deficit spending, and the consuming nations of the world need to start having babies. The idea of debt remission is anathema to debt holders, and children are anathema to what used to be called the “Me” generation; which has evolved into the Geezer generation.
Technically, I will say this: the €/$ is approaching a zone of potential support between 1.0833 and the price you see on the accompanying chart.
Before I would advise a long position in €/$, I would look for one bullish candle on the weekly chart. For newbies, that means, I would look for one week in which the € outperforms the US $, then I would buy 50% pullback from that range.
