From Jack Crooks at Blackswan Capital.
The euro tanks on "downgrade"
What did we know and when did we know it? Why such a big surprise to market players the European Central Bank (ECB) would downgrade its assessment of the Eurozone economy? And why is it a surprise the ECB may cut interest rates accordingly the next time around? Funny thing sentiment; isn’t it.
No doubt sentiment for the Eurozone has been high in light of sharp decline in bond yields throughout zone. But falling bond yields do little in the near-term to help generate real growth, which is what the Eurozone is struggling to achieve.
Now, can the euro finally do what it is destined to do, i.e.
fall sharply against the US dollar on declining growth and yield differentials? I sure think so and it is why Black Swan members are short euro as a core long-term trade. As much as I hate to use this word—inflexion point, maybe we are there now and the euro can fall much lower even without the key driver being the risk of breakup.
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