Getting Exactly The Euro Rally As Forecast

20 February, 2012
 

 

Getting Exactly The Euro Rally As Forecast

The Euro will continue to strengthen substantially. This is only the beginning. Expect a long term historical re-pricing of the Euro to much higher levels, especially against the US dollar.

This is necessary so as to accurately reflect the new value of the Euro as representing the largest economy in the world, one where corporate profits are strong and continuing to increase, one where unemployment has probably just peaked, and its newfound status as the most fiscally responsible economic union henceforth, and last but not least its roll as the only viable alternative reserve currency to the US dollar. Furthermore I continue to highlight, against the consensus, that Euro-zone GDP will grow by 2.00% this year. The market has severely mispriced the Euro lower on completely misguided notions of severe recession, disintegration, contagion, and all of these erroneous beliefs now have to be repriced out of the market as well.

We are looking at just the start of our forecast Euro Grand Bull Market.

The support area 1.3080 to 1.3130 will intensify considerably now, and should hold any pullback. More likely immediate support at 1.3165 will now hold for further upward acceleration. Minor resistance is at 1.3255, then 1.3330 and 1.3485. This market is on its way to 1.4600 1.4900, then 1.5200 1.5600 in a big picture sense. Very bullish !


Australian Dollar Up Up and Away!

The Australian dollar is right now launching into its next great upswing stage. If you are an exporter you have no excuse for not hedging. The market gave you every opportunity around parity and lower.

A nation of just 23 million people sitting on one of the world’s most valuable pile of rocks, in the midst of the greatest economic expansion the world has ever seen. Where else did you think the currency was going to go. Of course if you had listened to the mostly US driven media headlines and commentary about China being a pack of cards and Europe about to dis-integrate, then you may have missed the chance to buy this year’s most valuable currency. At White Crane we stuck to recommending buying every dip, and it is working, and will continue to work. The Australian dollar forecast at the start of the year was for 1.1300, when it was at parity, but the quick start to the year had us upgrade that forecast for this year to 1.1700. Yes, it would be one of the biggest currency moves in history, and that is how good the fundamental backdrop to the Australian dollar is.

The Australian dollar will continue to be strong because our mining companies developed to world leaders in their industry, allowing them to take full advantage of the economic miracle that continues to run apace just to the north.

Despite poor government and a central bank that simply doesn’t understand, the Australian dollar and the economy will continue to be carried high by the mining industry.

Strong support 1.0670 1.0720 is now likely to hold any pullback, and more likely the immediate support at 1.0745 or even 1.0785 will now hold for continued strong gains. Expect upward acceleration rather than any pullback. Resistance is at 1.0855 then 1.0965, but this market is clearly going a lot higher with one of the nicest and most constructive consolidation phases I have seen in any market for quite some time, now coming to an end.

Clifford Bennett


 

Clifford Bennett
Chief Economist
White Crane Group

Sydney, Australia.
+61 (0) 423 950 427
clifford@whitecranegroup.com.au
www.whitecranegroup.com.au

Great Recovery as Expected for Euro and Australian Dollar

           

Got exactly the scenario we outlined for the Euro of “short term pain, followed by long term gain”. Well, we have yet to see the long term gain from here, but we may well be in day one of a substantial bull market.

Our Euro support at 1.2980 remained intact, and now we have this very strong first impulse wave to the upside. While several days consolidation in the range could be expected before the favoured break to the upside, it is important to note that the dominant risk is now at all times to the upside.

The fundamental argument for a significant Euro rally for the rest of the year could not be better. Europe has dealt effectively with the sovereign debt challenge, will have the most fiscally responsible economies in the world over the next 1-3 decades, and continues to experience rampant demand for its good s and services from Asia and Latin America, as well as the forecast pick up in economic activity in the US. All this and the market had been bearish? So the catch up to the far better reality than the consensus had forecast, is likely to see rapid price gains.

The US dollar will continue to trend lower. Remember the “strong dollar policy” is in fact, the “orderly decline of the US dollar policy”. Also the reason for the as forecast strong state of the US economy at this time is the rest of world demand for American goods and services, particularly out of Asia and Latin America. Asia and Latin America lead the global economic cycle and have done so for many years.

While some will begin to suggest that the US is now leading the world out of global recession risk, (you should never read anyone who says this ever again by the way, as it confirms they have no idea), the truth is the US economy will and can only remain strong if the dollar continues to move lower to a level that more accurately reflects its true worth in the world, on a par with the Euro and the Yuan once it freely floats. So despite economic well being returning to the US, the US dollar is expected to remain under significant pressure, as greater wealth is created elsewhere in the world and global portfolios continue to be re-weighted away from the US dollar.

The Australian dollar can only go from strength to strength in an environment of stable and high yield, not to mention the burgeoning resources boom, still in its early stages and with another 5- 15, perhaps 30, years to run.

Keep buying both the Euro and Australian dollar, against a US dollar still in long term decline.

Clifford Bennett

Clifford Bennett
Chief Economist
White Crane Group

Sydney, Australia.
+61 (0) 423 950 427
clifford@whitecranegroup.com.au
www.whitecranegroup.com.au
           

Today’s “The White Crane Report” commentary follows below, as it is equally relevant for the foreign exchange market.

EUR/USD

Short term pain, followed by long term gain, is how I would still characterise the Euro. We are testing major support which I felt was an outside chance, but is now under quite a lot of immediate pressure. We do need to respect this immediate downside pressure on the day which is being driven by the mis-interpretation of political posturing as a real threat to the Greek solution, and, by the huge number of stop loss and fresh sell orders that probably exist below the 1.3020 to 1.2980 area. This support zone had perhaps become too obvious for its own good. In these circumstances there is often a run at the stops by the major banks at the European open, only for the market to rally back later in the day, with everyone stopped out.

Would suggest respecting the immediate downward pressure while resistance at 1.3075 contains. While a break back above there would signal a surprise bottom to most people had been seen. Overall continue to favour the upside, but have to be cautious at first going into Europe.

As for the Australian dollar, it remains the most likely candidate for strongest currency in the world this year. Continue to buy on any and all dips.

Clifford Bennett



The White Crane Report

And so it continues

Far from the strong up day I was expecting, the US markets had some more consolidation to deliver.

The equity market really is range trading here, and this price action could have more to do with being at strong highs near previous major resistance, than any real fundamental pressure. The US equity market is close to a sharp acceleration phase to the upside, and as always presages such a move, no one wants to be the first to pull the trigger just in case they are wrong. The comfort zone for many a major fund manager, and even individual investors, is that there are still concerns about Greece and therefore that’s the excuse for not doing anything.

It is a game of trying to appear wise, after already having missed a huge rally.

A lot of people actually want Greece to default now, as its their only way out of having got it so very wrong for the last five months, as the market has steadily trended higher.  The view here remains as it has been for the last two years, that Greece will get through this, there is zero risk of contagion, and Europe’s private sector is in strong health with higher and higher profits being delivered on a quarterly, let alone annual, basis.

Portugal actually had to increase the amount of paper on offer yesterday to satisfy insatiable investor demand. Yet still, we hear plenty of nonsense, particularly from one large US hedge fund yesterday, that Greece will be the start of global contagion. Yet their funds had losses ranging from 19% to 51% last year. So do not be mis-lead by some so called big names talking of disaster, for they are merely talking their under-water books.

As I have said before, even if Greece were to fully default, and leave the Euro, this would only lead to a much stronger Euro-zone economy, and Euro. For there would be no contagion, just a jettisoning of the worst part of the union, leaving the remainder all the stronger for the experience. Of course the mindless knee-jerk response would be to sell the Euro, but you could be sure the ECB and other central banks would quickly intervene to stabilise things. That would give the crazy investment herd time to realise that an exit by by Greece, was actually a good thing for Europe in the long run.

The central scenario here remains that the Euro is a Win Win trade. If Greece gets through this, the Euro is a buy, if Greece defaults the Euro is a buy!

Greece will get the funding it needs on February 20^th. It is almost as if a “need for drama” possesses the Europeans at times, and it is indeed high drama that they have created on this occasion. Still, you get the sense markets are becoming, as they should, less sensitive to events in Greece or Europe for that matter. Global markets are increasingly aware of what we have been saying in The White Crane Report for a long time, that global growth is more about the “new first world” of Asia and Latin America in any case.

It is expected that there will be significant political grand standing regarding funding Greece, but in the end Greece will be secured by the greater union of Europe. Once this is done, there will no longer be any excuse for the global investment community to be under weight equities, and the Great Race to Own Shares will commence!

Again today I Suggest buying the dip, as when the eventual break to the upside occurs, there will be little liquidity on the sell side.

Clifford Bennett









 
 
 

Clifford Bennett
Chief Economist
White Crane Group

Sydney, Australia.
+61 (0) 423 950 427
clifford@whitecranegroup.com.au
www.whitecranegroup.com.au

Greek Concerns Overstated and Creating Buy Opportunities

15 February, 2012

Greek Concerns Overstated and Creating Buy Opportunities

As expected and forecast, we are seeing plenty of posturing by various political leaders in Europe as to how Greece has to try harder, and make firmer commitments. This is all playing to their own voters of course so as to be seen to be tough and not easily parting with their own nations funds. The core situation however is that the funding package for Greece is not at all in doubt. As suggested yesterday, the sell off in the Euro, particularly when due to credit downgrades was a great opportunity to buy, and the same can be said of today!

Europe will be the big surprise of 2012. We all know the recovery in the US is beyond a recovery now, and should be termed a new phase of strong growth, and as surprising as that is to many a pundit, that Europe will achieve 2% GDP growth this year will really annoy the bears.

The more positive than consensus fundamental reality of Europe, combined with a market that has been bizarrely obsessed with the notion of a Euro disintegration or collapse, means the upside for the Euro is an extremely exciting story.



FxMax Price Action

EURUSD    1.3115
The market keeps trying to sell off on any excuse, but it really isn’t working. As long as we stay above major support at 1.3020, this is still simply a correction period pulling back into the previous area of consolidation, base line 1.3020.

The trigger to signal that this corrective period had come to an end, and the major up-trend from the 1.2630 low was set to resume, would be a break of resistance currently at 1.3220, though a move above more immediate resistance at 1.3170, should prove a reliable early warning signal. Immediately, 1.3065 1.3135. A little more downside testing followed by some stability, and up-trend resumption is the favoured scenario.


AUDUSD    1.0675
Still looks like a great buying opportunity to me. Similar story to the above though the price action looks even more encouraging. Which market is going to move higher faster is a difficult call at this stage, both are looking good but if pushed would suggest the Australian dollar.

The recent consolidation phase is reasonably well defined, but frustratingly wide with significant internal volatility. Favour strong support at 1.0610 holding for several days consolidation that could be as narrow as 1.0650 1.0725, as things calm down a little, but the dominant risk remains very much to the upside. Immediately 1.0660 1.0705, and looking increasingly ready to confirm a major low is in place by moving above resistance at 1.0725 1.0780.

Clifford Bennett



 


  

Clifford Bennett

Clifford Bennett
Chief Economist
White Crane Group

Sydney, Australia.
+61 (0) 423 950 427
clifford@whitecranegroup.com.au
www.whitecranegroup.com.au

All quiet

10 February, 2012

Foreign Exchange markets have been quite stable over the past 24 hours, and as we are about to upscale the FxMax report with charts and technical commentary beginning Monday, please excuse us for a lack of report today.

We look forward to providing you with the expanded FxMax service on Monday however.

Clifford Bennett

Clifford Bennett
Chief Economist
White Crane Group

Sydney, Australia.
+61 (0) 423 950 427
clifford@whitecranegroup.com.au
www.whitecranegroup.com.au

Australian dollar a touch tired after the sprint

9 February, 2012

Australian dollar a touch tired after the sprint


Euro still firming nicely for the Athens results


Overall global markets have been relatively stable over the last couple of days, the exception being the Australian dollar’s brief but impressive sprint higher.

Relative global market stability, albeit with a distinct bias to the upside, is what we have been forecasting, and are seeing. The Euro is holding up very well, with some slight intra-day volatility, perhaps more pronounced in Sterling, as the news flow out of Greece ebbs and flows. The overall view on European currencies however, remains decidedly bullish, with the worst of the crisis well and truly behind us, and the economic outlook, particularly the private sector decidedly more positive than the consensus view. Then there is the “only viable alternative reserve currency” factor, which is a favourite of mine and could possibly come to the fore this year.

Euro outlook is for some short term consolidation energy building here, with a significant break to the upside against the US dollar still favoured.  Immediately 1.3060 1.3365 wide, 1.3185 1.3275 narrow. Testing the downside at first, but favour buying on the dip.


The Australian dollar is looking a little tired after that sharp run to the upside across the board earlier this week. Remember the RBA did not hike rates, but merely kept them at the same level. While taking out the short sellers who were oddly expecting there to be a series of rate cuts, the yield advantage story is probably fully priced for the moment. Subsequently we could see the Australian dollar lower over the day, or next couple of days, but the dominant risk remains very much to the upside.

Immediately 1.0690 1.0875 wide, 1.0745 1.0815 narrow. Similarly favour some downside testing at first, and would be a little patient with short term buying. A move above 1.0815 however would be a trigger that the low had already been seen in this consolidation pattern.

Clifford Bennett




 

Clifford Bennett
Chief Economist
White Crane Group

Sydney, Australia.
+61 (0) 423 950 427
clifford@whitecranegroup.com.au
www.whitecranegroup.com.au
           

A Significant Break to the Upside by the Euro!

8 February, 2012

A Significant Break to the Upside by the Euro!

The very bullish outlook for the Euro, which I have maintained though out the sovereign debt crisis, continues to look good. This latest break to the upside is extremely significant. The ultimate barometer of the state of the European Union has been resilient throughout the crisis of the last two years. Forecasts of parity to the US dollar proving to be the absolute nonsense that I said they were at the time.

The Euro-zone will achieve positive GDP growth this year.
The worst of the sovereign debt crisis has been patently behind us for many months now.
The Euro has been consolidating, just waiting for the weight of overwhelming and ridiculous bearish sentiment to begin to lift.

I am not sure if the consensus has shifted that much, but it looks very much to me like, and similar to the equity market of a few months ago, that the bears are absolutely and completely exhausted. The key point however is that they are still caught short the Euro, so what to do? I suggest they should panic and buy back their shorts as quickly as they can. This could be a particularly powerful Euro rally!

This range break to the upside was pre-empted here in view, and also in our FxMax Directions signals. If you are similarly well positioned, then you are likely to enjoy a lasting and quite substantial up move from these current levels, all the way to US$1.3600 and US$1.3900 in the near term. The medium term outlook remains US$1.4900 to US$1.5200. We may have already seen the lows for the year.

The only risk is some last minute collapse of the arrangements regarding Greece. This is considered highly unlikely, but it is not impossible. Nevertheless the Euro would quickly recover from such a shock, to continue to trend higher. For the moment though, just in case, certainly keep stop loss orders in place below the current market.

Overall our very own bullish view is the one that is being encouraged by both geo-political developments, and the actual price action.

Clifford Bennett



 

Clifford Bennett
Chief Economist
White Crane Group

Sydney, Australia.
+61 (0) 423 950 427
clifford@whitecranegroup.com.au
www.whitecranegroup.com.au