Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

What the Euro Will Look Like in Five Years

Currencies / Euro Sep 30, 2011 - 07:08 AM GMT

By: Money_Morning

Currencies

Best Financial Markets Analysis ArticleSean Hyman writes: Believe it or not, there was a time when investors saw the euro as the savior currency of the world.

People talked about how the euro would replace the dollar as the world's reserve currency - and there was plenty of proof to support that opinion.


At the time, t he European Central Bank (ECB) had the right monetary solutions in place to fight inflation, while the U.S. Federal Reserve was struggling to keep inflation under control . That was another point for the euro, and a strike for the dollar.

So not surprisingly, central banks started replacing some of their U.S. dollar reserves with euros, and the euro became a second "reserve currency" for central banks.

The euro also soared past the dollar in just a few years. In fact, the euro shot up from 82 cents at its inception to $1.60 in less than 10 years.

Yes, it seemed that the planets were aligned for the euro to step up to the plate and become the world's reserve currency.

But that's because the euro had never experienced a real "rough patch," or serious monetary crisis.

Fast forward to 2008.

The Euro Gets its First Test
Once the credit crisis was in full bloom in mid-2008, loans dried up and unemployment went to 10% in the United States and Eurozone.

When crisis struck in 2008, the euro came under pressure. Germany and France could handle the issues, but the world quickly learned that Greece, Portugal, Spain, Ireland, and Italy were the Eurozone's downfall.

The euro can only be as strong as these weakest links. Unfortunately, none of these weak links have recovered yet. More importantly, they are not going to recover anytime soon.

A bond crisis like the ones erupting in Greece, and to a lesser extent Portugal and Ireland, can take years to shake out.

That's why, to this day, no matter how many loans the ECB or the International Monetary Fund (IMF) gives Greece, Portugal or the other nations in debt, they still haven't been able to fix this problem.

The European Union (EU) continues to give Greece bailout funds. But securing bailout money will not solve things. It's just a band-aid, not a cure.

The larger problem is that the ECB sets an interest rate policy that does not work for all EU nations.

Larger, more fiscally sound nations like Germany and France can handle it when the ECB hikes rates. The smaller debt-ridden nations can't. These guys are quickly finding this out now.

Here's How It All Ends Up
In the next five years, I highly doubt the Eurozone will keep all its members. It will still exist, though. The euro will survive.

But for that to happen, it will have to purge the dead weight that's dragging it down.

In 2016, I'd say only the larger countries will still be in the euro. I have no doubt that Germany and France make the cut. They will probably find some way for Italy and Spain to stay in the euro, too. These are the largest economies (by GDP) in the Eurozone.

Most of the smaller economies are one-third or one-fourth the size of these larger ones. I believe that most of them will be forced to exit the euro and institute another "home currency" for themselves.

One of the only smaller countries that seems to handle the overall interest rate policies is Estonia. It has a fast- growing economy and a budget surplus.

Aside from that, I have my doubts about most of the other smaller economies making it longer-term with the euro. (That includes the smaller Greece, Ireland, Italy, and Portugal.)

With countries having their own currencies and central banks, when debts pile up, they will be able to simply devalue their currency (similar to how the Fed has done with the dollar).

It's not the best solution, but it will help pay off their debts. And the smaller countries will no longer drag down the larger economies.

In the end, it will work out best for the Eurozone. However, as this process unfolds, and one country after another leaves the euro currency, it's going to destroy whatever positive sentiment is left in the euro.

That's why I see the euro/U.S. dollar (EUR/USD) exchange rate heading so much lower. In fact, I believe the euro could hit parity with the U.S. dollar in the next five years. (Something that hasn't happened since 2002.)

As this all unfolds, there will be some incredible opportunities to short-sell the euro in the forex market, especially against the dollar. That involves short-selling the EUR/USD pair.

Bottom line: The euro woes are far from over. Over the next five years, we'll see this play out in the currency market as the euro plummets in value. As a trader, I'll certainly be looking to short the euro as it continues to fall.

[Bio Note: With the outlook for the dollar and the euro growing increasingly bleak, many readers have asked us about currency trading. So we decided to respond by bringing on a new currency expert - Sean Hyman. Hyman is a veteran currency trader with more than 20 years of experience. He also currently serves as Investment Director for World Currency Watch, and editor of Currency Cross Trader. Watch for his columns on currency trading in Money Morning.]

Source : http://moneymorning.com/2011/09/30/what-the-euro-will-look-like-in-five-years/

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in