The Euro Is Diving To Its Lowest Level Since 2012

MIKE BIRD

SEP. 25, 2014

The euro is down 0.3% this morning, breaking into territory last seen in November 2012. At the time of writing, it’s sitting at $1.2738.

The single currency is down more than 8% since May this year.

Bloomberg

The euro has been dropping against the dollar since a recent high in May.

The euro has been dropping since Spring, during which time the ECB has cut interest rates twice, and announced a new  cheap credit scheme for banks. It’s not clear yet whether Mario Draghi will push for full-blown QE, but markets now know the ECB is only likely to ease further. 

In an email this morning, Stefan Koopman and Philip Marey at Rabobank noted that Draghi told French radio yesterday “exchange rate movement reflects the different path of monetary policies.” In short, the ECB boss knows that the Fed is likely to raise interest rates at some point in the middle future, increasing the dollar’s strength. 

Translation? Expect more of this in the future. 

The Euro Is Tumbling

SAM RO

 AUG. 12, 2014

The euro is sinking following a horrible German investor confidence report.

It’s currently at $1.3343, down 0.3% for the day.

Germany’s ZEW investor confidence survey index plunged to 44.3 in August from 61.8 a month ago. This was much worse than the 54.0 expected by economists.

To make things worse, the expectations index crashed to 8.6 from 27.1. This was the lowest reading since December 2012. Economists were expecting 17.0.

“In one line: Grim, as slump in investor sentiment deepens,” said Pantheon Economics’ Claus Vistesen.

On Thursday, we’ll get our first estimate of Germany’s Q2 GDP. Economists estimate it contracted by 0.1% quarter-over-quarter.

Bloomberg.com

The Euro Is Breaking Down This Morning...

Joe Weisenthal

 Mar. 27, 2013

There are a lot of things to worry about in Europe: Italian political chaos. Cyprus. The mouthing off of Eurogroup President Jeroen Dijsselbloem.

As such the Euro is hitting a 4 month low.

FinViz

SocGen's Sebastien Galy writes:

We almost reached our first target of 1.28 in EURUSD, opening up the next level at 1.26, both levels driven by our models. It suggests a strategy of selling on short covering to target the new lower range with a bottom at 1.26. As a reminder our year end forecast goes into the 1.20s. Models have worked surprisingly well for eurusd (for us not our twin), the last short covering came close to 1.31 given by the 80 percent quantile model, though our traders nailed it perfectly with a call for 1.3050.

The Euro Just Tanked

Sam Ro

 Feb. 22, 2013

The euro just fell to its lows of the day.

According to Bloomberg, the ECB is saying that European banks will be repaying just €61.1 billion worth of loans from the second tranche of the long-term refinancing operations (LTRO). These are the loans that were offered starting in 2011 to troubled eurozone banks to boost liquidity in the banking system.

Estimates for repayment were for around €122.5 billion, reports Bloomberg's Mike McKee.

Here's a chart of the euro against the U.S. dollar from Finviz:

Finviz

The Euro Is Getting Smoked Today

Joe Weisenthal

 Feb. 4, 2013

The euro has been the hottest currency in the world.

But today it's getting clobbered.

Between fears in Spain, Italy (and oh yeah, Cyprus), combined with this week's upcoming ECB meeting, folks have a reason to dump euros.

Via FinViz, here's the intraday chart.

FinViz

The Euro Is Going Wild Again Today

Joe Weisenthal

 Feb. 1, 2013

The hottest currency in the world -- the euro -- is going bananas again today.

The latest culprit?

The solid Germany PMI report, which shows the German economy bounding back at a rate quicker than expected.

From FinViz, here's a chart of EUR vs. USD.

FinViz

CITI: A Greek Exit From The Euro Is Now 'More Manageable And Hence More Likely'

Matthew Boesler

 Sep. 19, 2012

Wikimedia Commons

Citi chief economist Willem Buiter and his team are out with their latest monthly Global Outlook and Strategy report, and they still see a Greek exit from the euro as a near certainty.

In fact, they think it's looking more likely than it did last month.

The bearish call comes despite the ECB's latest OMT bond-buying plan, widely believed to eliminate the tail risk of a big shock in the eurozone, and despite the prognostications of euro area leaders – especially in the economically sound "core" countries like Germany's Angela Merkel – that a Greek exit would spell disaster and is to be avoided at all costs.

A few key points from Citi economist Michael Saunders:

• The probability of a Greek exit from the euro has not receded in the wake of the ECB announcement; on the contrary, it's now more likely because it's "more manageable"
• Troika leaders (from the ECB, IMF, and the EU) probably don't think a Greek exit is as big a deal as they thought it was before the ECB announced its new plan
• A Greek exit would still cause capital flight from Italy and Spain but would be necessarily accompanied by massive global central bank intervention

Here is Citi's full take on "Grexit," from the note:

First, we continue to put the probability of ‘Grexit’ (Greece exits EMU) in the next 12-18 months at about 90%, and within that period believe it is most likely to happen in the next 2-3 quarters. Fiscal trends remain weak, with revenues and privatization proceeds markedly undershooting official forecasts, while the election earlier this year has not significantly improved Greece’s ability to get the programme back on track. Moreover, the Troika members probably are now much less fearful than early this year about the systemic consequences of Grexit. Private sector exposure to Greece has been cut sharply, while a potentially adequate firewall for Italy and Spain is now in place through the combination of an EFSF/ESM programme plus the ECB’s OMT framework.

Prior attempts to construct a firewall — by leveraging up the EFSF, expanding IMF resources or introducing the ECB multi- year LTROs — either failed to get off the ground or lacked staying power. Until recently, the absence of a solid firewall for Italy and Spain raised risks that Grexit would destabilise the overall euro area, hence more or less obliging the Troika to continue to support Greece. Now, with a firewall in place, Grexit is more manageable and hence more likely. Grexit probably would still intensify capital flight out of other periphery countries, but it also would probably be accompanied by OMT-related support for Italy and Spain plus massive liquidity support from the ECB and other major central banks.

Nevertheless, Grexit is not certain and its potential timing is highly uncertain. The risk of Grexit in the next couple of months probably has receded, with deadlines being pushed off. Policymakers may be unwilling to trigger Grexit in the run-up to the US elections, and while Middle East tensions are so high. We continue to assume, for modelling purposes, that Grexit occurs on 1 January 2013, but stress that gauging the precise timing of such an event is next to impossible. Indeed, there is a chance that the current paralysis of deferred deadlines plus reliance in Greece on short-term bill issuance and ELA expansion could extend for a while into 2013.

EURO JUMPS

Sam Ro

 Sep. 6, 2012

The ECB unexpectedly held its benchmark interest rate at 0.75 percent.

This has the euro jumping from around $1.2617 to around $1.2646

Bloomberg

Euro Surging

Sam Ro

 Aug. 31, 2012

The euro is surging against the dollar this morning, up 0.68%, ahead of Ben Bernanke's big speech at the Kansas City Fed's annual symposium in Jackson Hole, Wyoming.

Economist don't expect too much from the Fed.

However, it looks like currency traders are positioning themselves for dovishness.

Here's a chart of the Euro/USD courtesy of Bloomberg:

REPORT: Germany May Ask Greece To Exit The Euro 'Temporarily'

Matthew Boeslerin

Aug. 24, 2012

Bundestag

German Finance Mnister Wolfgang Schauble

Market News International is reporting that the German Finance Ministry may ask Greece to exit the euro "temporarily" while it straightens out its finances.

From MNI:

The German Finance Ministry is seriously considering a plan in which Greece would be obliged to ask for a temporary exit from the Eurozone until it sorts out its public finances, senior Eurozone officials told MNI.

CITI: There's A 90% Chance That Greece Leaves The Euro — And It Could Happen In A Matter Of Weeks

Joe Weisenthal

Aug. 22, 2012

Ed Yourdon on flickr

Citi has long been among the most bearish banks on Greece's prospects of staying in the euro, and now they're getting even more specific and dire in their forecasts.

In a new note out today that's hitting with a thud, analyst Michael Saunders writes:

We continue to expect that the EMU crisis will persist, with prolonged economic weakness — especially in periphery countries — and further periods of intense financial market stress. Euro area GDP fell in Q2 and we expect that overall euro GDP will fall in both this year and 2013, with severe falls in most periphery countries. The Citi Economic Surprise Index (CESI) for the US recently has moved close to neutral, but for the euro area it remains firmly negative. We continue to put the probability that Greece will exit the euro area (ie “Grexit”) in the next 12-18 months at about 90% and, within that timeframe, we think it is increasingly likely that Grexit will occur in the next 6 months or so, conceivably even as early as September/October depending on the outcome of the September Troika report on Greece.

How would a Grexit work?

The exact mechanics of Grexit also are uncertain. We envisage an extended bank holiday and some form of capital controls and limits on deposit withdrawals in Greece (and perhaps some temporary restrictions in some other EMU countries as well). 

Prior examples highlight that currency redenomination need not be uniform: for example, when Argentina abandoned its currency peg to the US$ in 2002, the government decided to apply a 1-to-1 exchange rate for Bank loans and a 1.4-to-1 exchange rate to deposits. 

Moreover, when East Germany adopted the Deutsche Mark as legal tender on July 1, 1990, just ahead of German unification in October of the same year, the East German mark was converted at par for wages, prices, pensions and savings up to a limit of 4000 East Mark/person. Financial claims, including corporate and housing loans, and savings in excess of 4000 East Mark were converted at a ratio of 2:1 into the Deutsche Mark.

 We assume that a new Greek currency would fall by about 60%, pushing inflation markedly higher in 2013- 16, but the scale of currency decline is highly uncertain.

Look How The Euro Has Plunged During The ECB Press Conference

Simone Foxman

 5 minutes ago 

The euro has fallen fast, dropping below $1.22 again.

This suggests new angst about the euro area, as ECB President Mario Draghi fails to announce any new measures in his press conference following the European Central Bank's latest monetary policy decision.

Check out the EUR/USD:

DailyFX

Euro Climbs Ahead Of ECB Press Conference

Investors are cautiously awaiting a press conference from European Central Bank President Mario Draghi, and the euro is climbing sharply higher.

Some of this euro strength could be generated by the central bank's decision to leave interest rates unchanged this morning, since cutting rates would likely have decreased the value of the currency against others.

More importantly, however, euro strength could signal investors' belief that the ECB will take stronger action to address increasingly unsustainable borrowing costs for Italy and Spain. Draghi arguably hinted at this last week.

LIVE: The ECB Press Conference You've All Been Waiting For >

Check out the euro in the last few hours:

DailyFX

 

All Of The Tools Available To Mario Draghi As He Attempts To Save The Euro

Max Nisen

 Aug. 1, 2012

Wikimedia Commons

After the Fed elected to stand pat for the moment, the market is has switched its focus to Mario Draghi.

His situation is someone different from Ben Bernanke's, as the European Central Bank has a narrower mandate and more complicated system of government to deal with.

Morgan Stanley has put together a list of Draghi's possible courses of action, we've separated them out by their rating of potential impact. 

Low Impact: 

• Changing collateral requirements: The ECB could enact this on their own, however the impact would be muted outside of the markets that are directly affected. 
• Buying EFSF (European Financial Stability Fund) debt: Not very effective as EFSF rates are already low, and it does not help lower periphery yields. 

Low to medium impact:

• Extending LTRO (Long Term Refinancing Operations): This would involve extending the ECB's program offering cheap long term loans to banks. Limited impact/take up as there is little appetite for risk or balance sheet expansion among European banks. 

Medium impact:

• Refinancing rate cut: Could be enacted by the ECB's governing council alone, would result in cheaper funding for banks. 
• Depository rate cut: This would involve making banks pay to hold reserves with the Central Bank. Morgan Stanley believes it would likely richen collateral rates, but not increase cross border interbank lending. 
• Private debt purchases: Unlikely to occur as private bond purchases won't affect the sovereign debt crisis.  

High impact:

• Revising seniority of Government bond holdings: This would take a bit more doing as it would require the assent of Euro area governments. Could have a very large impact, especially if the decision is retroactive. This would be the path towards a revised Greek bailout in which public debt holders take a haircut in the value of their bonds. 
• Combining the SMP (Securities Market Program) with the EFSF (European Financial Stability Fund): There are significant barriers to such a program, a country would have to apply for a support program, the ECB and EC must agree that financial stability is under threat, finance ministers would have to accept the program, then the Euro area parliaments would vote. However, a coordinated program of bond purchases in the primary market (EFSF) and the secondary market (by the ECB) would be a powerful way to reduce periphery bond yields. 
• ESM Banking License: The ECB would serve as a counterparty for the ESM to buy up debt. The issue is that the EU treaty explicitly bans the monetary financing of EU institutions. The issue is currently being decided in German constitutional court. This would have a large impact as it would create a lender of last resort for governments.  
• Quantitative easing: Purchases of public and private assets on a large scale. The ECB would have to justify this as a move to prevent downside risk to price stability, which Draghi started to do last week. Points to the ECB starting to serve as a lender of last resort for governments. 

Uncertain/ambiguous impact:

• Securities Market Program Alone: This would involve sterilized government bond purchases by the ECB. Since it is of fixed duration and has not been successful in limiting bond spreads and yields in the past, it is unlikely to be hugely effective. 
• Funding for lending: This would copy a Bank of England program in which a bank could swap a loan to a household or business for a liquid asset from the central bank, paying an interest rate that is dependent on the bank's level of lending. Could help increase loans to small businesses in the Eurozone.  

The Euro Is Getting Pummeled

Joe Weisenthal

 Aug. 1, 2012

Following that hawkish Fed statement, the dollar is booming, and the euro is tanking.

From FinViz:

Euro Tanks After Short Selling Bans Signal New Weakness

Simone Foxman

The euro is tanking right now, falling well below $1.21.

The currency has been declining in value all day, as investor worries about Europe escalate.

Adding to those concerns are new short-selling bans in Spain and Italy.

Regulators in both countries allowed earlier bans to expire earlier this year in the wake of unprecedented liquidity measures by the European Central Bank that started last December. 

The revival of these bans signals that pressures on both countries have returned to dangerous levels.

Check out the EUR/USD in the last few hours:

DailyFX

Euro Collapsing

Joe Weisenthal

  Jul. 20, 2012

Total steaming disaster in Europe today.

The Spanish market is down over 5%.

Italy is down over 4%.

Yields are blowing out.

And the euro is in freefall.

From FinViz, here's EURUSD:

FinViz

Read more: http://www.businessinsider.com/euro-collapsing-2012-7#ixzz21Ahzenjq

The Euro Is Getting Absolutely Destroyed Today

Simone Foxman

 Jul. 12, 2012

We noted earlier that the euro had sunk below $1.22—an important benchmark value for the currency.

But it just keeps continuing to fall, now hitting new lows of $1.2172.

Rising European bond yields in the secondary market and a sinking value of the currency generally indicate increasing doubts about the European economy. However, a cheaper euro is ultimately better for struggling European economies like Italy and Spain, as labor and exports become cheaper, too.

That said, it's hard to believe right now that the Italian and Spanish economies will be able to pick up quickly enough to allow both countries to grow out of their problems in the current situation.

Here's a look at how the currency has performed so far today:

DailyFX

The Euro Shoots Higher

Joe Weisenthal

 Jun. 17, 2012

ATHENS, GREECE -- It's "risk on" to start the week.

Following the victory by Greek conservatives, and the likely formation of a pro-bailout government, one disaster scenario has been taken off the table. Markets like it for the moment.

Remember though last weekend, markets boomed after the Greek bailout news, and then the rally fizzled by the middle of Monday. Just saying, this Greek news isn't in itself a massive positive.

FINVIZ

Here's The REAL Reason The Euro Has Been Plunging

Joe Weisenthal

 May 25, 2012

The euro has been plunging lately against the dollar, and it's down to levels not seen in over two years.

This chart from FRED gives the gist of what's been going on, but it's a couple days behind, and now the euro has fallen to about 1.25 against the dollar.

So naturally, people are screaming about how the Eurozone is in turmoil and that people are fleeing the currency as some kind market vote on the likelihood of a collapse.

But there is an annoying thing that happens in media discussions of the Euro...

The Euro (currency) is seen as though it is a proxy for the stability and future of the Eurozone. And it is assumed that when it's going down, it means the Eurozone is closer to blowing up, and then when it's going up, it means the Eurozone is more likely to hold together.

But that's not really true, and we'll get to a bit of that later.

In the mean time, here's another version of the above chart, except this time in addition to the Euro (red line) we've added the price of Brent Crude Oil (blue line).

It's not perfect, but since at least the middle of 2010, the euro and the price of oil have moved very similarly.

Since 2011, the pair have almost been in lock step, and since the beginning of 2012, the euro and oil have been perfectly in lockstep.

This might seem odd that the Euro and oil would move so similarly. After all, unlike Canada (whose economy is quite tied to oil), Europe doesn't benefit when oil rises at all, and so at first blush it doesn't make much sense that the Euro should strengthen when oil prices go up.

But that's forgetting the way nature of the European Central Bank ECB.

The primary belief of the ECB -- as its chief reminded us this week -- is to keep prices stable. The ECB is obsessed with fighting inflation. Any kind of inflation. The ECB wants to beat back inflation at all costs, even if doing so may be economically detrimental.

That's why in early 2008, and early 2011 (two times when the price of oil boomed) the ECB raised rates even as their domestic economies were teetering.

As everyone knows (or should know) a hike in rates by a central bank tends to make the currency strengthen.

But while the ECB freaks out about oil prices, the Fed tends not to, as Bernanke prefers to look at more 'core' measures that strip out commodity volatility.

This was explained in a note by Citi's Jeremy Hale last year:

Oil prices have been positively correlated with EUR/USD for some time. One reason is the perceived asymmetric policy response by the ECB and Fed to higher oil prices, where the ECB typically responds more hawkishly. Another is that trade flows/ exports to the oil producers favour Europe over the US.

Another key reason he cites is that revenues from oil (accrued to Mideast oil producers) are frequently banked in Euros, creating upward pressure.

So when oil is rising, it's seen as more likely that the ECB will increase (or at least not loosen) monetary policy. And that makes the Euro strong. And when oil is dropping (as it has been lately) the odds that the ECB will cut rates goes up. And that makes the Euro weak.

Really, the idea that the Euro would be a proxy for the Eurozone is very dicey. If Greece were to leave, it's easy to imagine the Euro selling off in knee-jerk fashion, but it's not clear that the long-term path would be down. Furthermore, the crisis actually creates upward pressure on the euro because liquidity-parched banks have to repatriate funds from overseas and buy Euros to pay off their debts. Think about it, in a crisis, everybody needs to grab euros to pay the bills. That can actually be bullish for the currency.

It's just very murky trying to connect the currency and the zone.

So rather than seeing EUR/USD as some kind of proxy for the health of the Eurozone (which has been mess for a very long time) think of it as having to do more with the price of oil, and how the price of oil affects monetary policy and currency flows.

Finally, if you're still not convinced that oil is more important to the euro than the crisis tensions, check out this same chart going back to 1999, since long before anyone thought there might be a Eurozone crisis. The similar movement in the euro and oil is uncanny.

UPDATE:

Some people on Twitter and in the comments are pushing back, saying that this is just about the dollar and that it's almost a tautology that the euro and oil would trade together, since the denominator is the same.

There's certainly some of that, but here's a chart of the The Euro/the British Pound (red line) vs. oil (blue line). It's not perfect, but the correlation is still there.

Due to some interesting characteristics, the euro and the price of oil have a unique relationship.