-------- Original Message --------
| Subject: | How Over-Valued Are Currencies? |
|---|---|
| Date: | Thu, 17 Jan 2013 07:16:53 -0800 |
| From: | Jas Jain |
How Over-Valued Are Currencies?
The most important thing to know about the FX market is that it is driven by speculators and its existence has the same purchase as the stock market in the US has had since mid-1990s—to allow Crooks to make lot of money, e.g., Crooks like George Soros. Currency manipulation by central banks and govts is a common thing, but Americans and many others blame only one country, China.
The US dollar is under-valued against most currencies, including Euro (it is an unannounced policy of the US govt and the Fed, an attempt at correcting the trade deficit when the real problem is over consumption and federal deficit spending, the #1 cause of dollar under-valuation). However, Euro is not as over-valued against the USD as are some other currencies, e.g., Aussie Dollar (AUD) and Swiss franc (SF). Attached is a chart of the three currencies mentioned for the past dozen years. These currencies bottomed during 2000Q4-2001Q1 and now AUD and SF are roughly at twice the level they were at the bottom. Of course, SF put a blow-off top during August 2011, but is still very much over-valued against to currencies that are very important for the Swiss economy, Euro and USD.
In order to get some idea where these currencies might be heading let us look at a very long-tern chart of the dollar index (DXY). The current behavior is similar to early 1990s when it made the final bottom in 1995 before a break out in 1997 and it made a top in late 2000, going up some 55%. The next trigger for a big move up in dollar would be the next financial crisis in one of the major economies, or economic zone.
My targets for the three currencies are:
AUD $0.60
Euro $1.10
SF $0.80
In a global depression, AUD could go as low as $0.40. It would be bad for all commodity currencies. I would start accumulating a big short position in AUD, which has a limited upside and huge down side (down and under!).
Posts
No comments:
Post a Comment