Where The Euro Goes After Its 10th Birthday
The Dynamic Wealth Report
January 5, 2009
The Best Birthday Trade Ever...
All over Europe people are celebrating a birthday. Ten years ago this
month the Euro was born. Ok, not so much born as created. The EuroZone
is celebrating the birthday of the Euro… as they should. The Euro has
been one of the biggest drivers to economic expansion in Europe over the
last decade. Some might argue this fact, but I believe it’s true.
The Euro was quickly adopted by citizens and businesses in countries
across Europe.
All at once, country to country travel became easy. No need to trade
currency at ever stop. Business activity accelerated. No need to deal in
multiple currencies and experience currency risk. Accounting got easier.
Business transparency improved.
Even interest rates fell.
Within a few years, countries converting to the Euro scarcely remembered
their old currencies. It was good times in the EuroZone. Unfortunately
all of that has changed recently. The Euro is facing its biggest threat.
When the Euro started trading, it was valued at 1.18 Euros to the US
Dollar. Now it trades for about 1.39 Euros to the Dollar. An
appreciation of almost 18%. Unfortunately, the Euro’s been falling
against the dollar over the last few months.
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In late summer it traded as high as 1.60. As it falls, it threatens the
stability of the entire EuroZone. If the Euro is devalued against the
Dollar in a significant way, it could threaten its very existence.
Now, I’m not telling you anything you couldn’t have read in the Wall
Street Journal or discovered through a little research of your own.
What I do want to point out is recent market action in the Euro.
Take a look at this chart and you’ll see what I mean. The Euro has
rallied since late November, gaining almost 12%.
Why the recent run-up?
Because the US Federal reserve cut interest rates to near zero. That
drove investors out of the US Dollar and into the higher yielding Euro.
But here’s the issue… the Fed can’t cut rates anymore (at least I don’t
see them posting a negative interest rate any time soon). But the
European Central Bank can. Their interest rate is currently 2.5%. That
means if they cut further, the Euro could fall against the value of the
dollar.
Watching these interest rates closely is an important part of currency
trading.
As the global credit crisis and recession further crush the economy,
you’d expect the value of the Euro to fall as well. This is a one-two
punch that could serve as a knockout-blow to the Euro.
The easy way to profit from this trend is by using a double short ETN.
Market Vectors Double Short Euro ETN (DRR) allows us to profit from the
fall of the Euro. The fund should move double the daily direction of the
Euro… and I’m expecting that direction to be down.
Now if an idea like that’s not a great birthday gift, I don’t know what
is.
[Editors Note: Brian’s Currency Options Insider was one of the top
performing newsletters of 2008 averaging 243% per trade. And it looks
like 2009 could be even better.
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can join this exclusive service…]
•
Gold Mining (Up 38%)
Over the last month, we’ve seen a big move in some of the gold
mining stocks. Gold prices have rallied off their lows set back in early
November, and that clearly bodes well for the mining companies.
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