Here is an hourly chart of the cash euro-US dollar pair. I last commented on this market here.
Unlike the bond market, the euro-usd seems to be taking Bernanke seriously by dropping sharply after his speach (so that the dollar is rising against the eurocurrency).
This divergent behavior of the dollar and the bond market after the Bernanke speech makes me think that the key factor now behind the dollar movement is more fundamental than interest rate expectations. Take a look at the latest article in The Economist magazine about their "Big Mac" index. It shows that on a purchasing power parity basis the euro is very overvalues against the dollar.
So I am sticking with my longer term forecast that the euro-usd will drop below 116 during the second half of this year.
2 comments:
Carl,
Respecfully, isn't it a bit inconsistent for you to cite the "Big Mac" index as an indicator??
Yes, it shows (vs the USD) the euro as overvalued by 22%, but it also shows the Japanese Yen as undervalued by 28%. Yet, your outlook is short both currencies.
J. Walker
Your point is well taken, but speculation is as much art as science.
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