Yesterday afternoon my friend brought his new girlfriend over for a visit and the 70 degrees mandated we sit outside and talk. The four of us sat in the warm sun chatting about this and that. During the chit-chat, my friend’s girlfriend asked me what I do (such a standard icebreaking question). I told her that one of the things I do is write this column. She asked me if I enjoyed writing this column …
I love what I do as it affords me the continual opportunity to expand my understanding of the economic world, which makes me better at making my money work for me. How about that for a self-focused sentence (I, I, me, my, me, my, me)? Okay, so let’s switch from me …
Why is the Euro$ not dropping? I can’t believe its strength.
I love this question. The essence of it is that a currency will (should) behave according to what, some set of criteria? “Drop euro, drop! I command you to drop!” You see folks, the lament here points to the nature of trading currencies, and that is that currencies are reactive (all markets are really), responding to stimuli, which are often conflicting. For example, check out my comparison of the news excerpts below.
NEW YORK – The dollar slid to a two-month low against the euro on Monday amid a perception that the European debt crisis is easing and the European Central Bank could lift interest rates. The euro has jumped more than 5 percent in the past two weeks after a months-long decline spurred by the European debt crisis that has led to bailouts for Greece and Ireland. But investors’ perception that European officials will soon come up with a more comprehensive solution to the crisis has helped calm tensions.
Clearly, the above suggests an answer to the reader’s question. Investor’s perceptions are keeping the euro up. Simple enough, I say. So, why then is the reader having an expectation that the euro should be behaving according to his understanding of the global currency environment? The answer to that most likely resides in the conflicting excerpt below.
JOHANNESBURG (Reuters) – Europe needs to strengthen its financial rescue fund to reduce the risk of renewed global instability as U.S. tax cuts and buoyant emerging economies help propel the recovery elsewhere, the IMF said on Tuesday.
On the one hand, investors believe that Europe is recovering fiscally, so they express that belief in their support of the euro. On the other hand, “official” commentary is that Europe is still fragile and governing bodies need to do more work to shore up the financial system, or else. So who is right, and, more importantly, how does one know which way to play the trade? Now we get down to it, don’t we? Do you trade on optimism or pessimism? Me thinks one has to follow the money, no?
Trade in the day; invest in your life …
