Let me begin by stating that I don’t like the euro.
It is very flawed. However, the U.S. dollar is just as flawed.
My favorite currency longer term is probably the Canadian dollar.
Canada has a wealth of resources, a solid banking system and a controllable debt load. Canada isn’t botching them up, like Australia.
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However, as a trade, I really think you should consider looking at the euro at these levels — and especially if it drops into the $1.10-1.20 range. Right now, there is near universal bearishness on the euro.
At a recent CLSA conference, a poll of the euro was conducted. About 97 percent of respondents stated that the euro would trade at 1.24 or lower in the coming years, with more than 80 percent of them stating it would trade at 1.00 or lower. Only 3 percent said the euro would trade higher in the coming year.
This is the type of overwhelming negative sentiment you usually find near bottoms.
And it is not like the euro is going down against a solid currency. It is going down against the U.S. dollar.
If you look at the debt levels in the United States, you will see they are basically on par with many of the so-called PIIG nations. The only advantages for the U.S.: the dollar is still the world’s reserve currency and the U.S. can print money (unlike Greece).
What I really see in the coming years is not a euro or U.S. dollar collapse but rather both currencies being in a trading range against each other while other currencies and commodities go up against both.
However, in the short term, the euro is very oversold and the sentiment is terrible.
To paraphrase Sir John Templeton, you buy what is hated. Right now, the euro is hated.
About the Author: David Skarica
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