FX fundamental analysis W
here does this leave us ?
For sure, in ver y volat i le market , wi th ver y l i t t le vi s ibi l i t y on a clear end g ame. Contag ion and transmi s s ion me chani sms have shown thei r ug ly face ver y s imi larly to Q4 2008: the extremely neg at ive pr ice act ion at the beg inning of May was qui te impres s ive. On the other end determinat ion f rom pol ic ymaker s to defend the Euro proje ct i s there, l ikely in big g er s ize than some ini t ia l inde ci s ion and confus ion would have
sug g es ted.
Di sper s ion of outcomes f rom e conomic ana lys t s i s therefore mas s ive. From one extreme to the other… •
Charles de Gaulles’ visit to Germany in 1962 C o m p e t i t i v e n e s s
di sper s ion among Euro countr ies i s too big and impos s ible to be reduced under a f ixed currenc y, or unique monetar y pol ic y f ramework ( i .e. Euro) , and wi thout a resource trans fer sys tem orig inat ing f rom some centra l ized f i sca l pol ic y. The mas s ive backs top packag e and the s tabi l izing purchases f rom ECB i s only buying t ime before aus ter i t y prog rams and pol i t ica l ins tabi l i t y wi l l force some res tructur ing / defaul t / outright exi t f rom the monetar y union. •
The pol i t ica l wi l l to
br ing a long the Euro proje ct was born more than f i f t y year s ago wi th the noble intent to
20 FX TRADER MAGAZINE July - September 2010
The political will to bring along the Euro project should not be underestimated
avoid once ag a in the trag ic event s des troying Europe during WWI and WWI I . The s treng th of such a wi l l should not be underes t imated. Pol ic ymaker s wi l l do whatever i t takes to ke ep the proje ct af loat .
If ne eded weak
countries wi l l be kept out of the ref inancing market long er than the current ly es t imated two-year hor izon, a weaker Euro could be used to improve e conomic prospe ct s , even a more convinced debt monet izat ion (US or UK s t yle) might
be forced upon the ECB. As can be inferred f rom these oppos i te outcomes , the rang e i s wide and a lmos t any thing can happen. On our s ide we are ver y open on pos s ible evolut ions of the s i tuat ion, having somehow a bet ter convict ion on two point s : -
Despi te the spe ed at eventua l ly
which the s i tuat ion have evolved in the las t few months , we s t i l l bel ieve i t i s going to be a ver y long g ame. Year s and not months i s the t ime horizon of thi s bat t le. That i s why tr ying a fore cas t now i s qui te
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