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Jesse Livermore
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Gold Market Wire

News, analysis and commentary for gold traders and investors

FX Watch

Why the Euro/USD is the Best Short in the Market

March 18, 2020 - (Gold Market Wire) - Why the Euro is the Best Short in the Market.

Almost everyone in the market place, especially the thundering mass of day traders and speculators have one common theme that unites them: The idea that US Dollar is finished as a currency. Websites proclaim it. Great investors proclaim it. The chattering classes of the financial world extol it ad infinitum. If ever there was an over-crowded boat ( listing heavily to one side, the “sell the Dollar – it's finished” position is it. It is, in fact, one of the more prominent examples ever, of that oft used term (and book title) “the extraordinary madness of crowds.”

Traders, great traders,are made from their contrarian outlook. “Buy when there's blood in the street”, “be fearful when others are confident and confident when they are fearful” etc.

Now, anyone who knows anything rudimentary about trading, knows the crowd is always wrong...or damn near always... and they will be wrong this time too... the Dollar is NOT going to crash... and the fact that everyone is convinced it WILL crash is a manifestation of that fact. The Federal Reserve is the last liquidity provider on the planet...and boy are theyever providing it... to the entire planet. The banks won't provide it... the ECB can't provide it, because the currency is like toxic waste, and could be a historic relic in the blink of an eye – not to mention the fact that there is no “EU” bond market. There is only the EU-national sovereign bond markets.

Of course, this “dollar is finished” theory means, in practice, running short after short and getting stopped out. Then waiting and trying again – with the same (defined as insane) result. Sure the dollar may in fact be finished. But what if it explodes to the upside, on the way to being finished?

The Euro is not on any road to recovery. The Italian 10-year bond collapse is a vision of the rest of the member states debt within the next year or two, at the most, and perhaps as early as next week. And yes, you could take a flyer and hope that the German Bund would be a haven, but given the state of the German economy, that may not be such a good idea.

Further east, there's no way anyone is going to get a liquid bond investment in Yuan or the Ruble, so it is the Dollar by Default. And that is a good basis for the trade. There is NO CONFIDENCE in the Euro in the financial world... now, especially after ECB President Lagarde's latest political gaffe regarding  Italian Bonds – which amounts to a big“who cares?/not my job.” – to the EU's third largest member.

loose lips sink ships, Chrissie

Now maybe people can see why the adults at the table in the UK, like former Bank of England governor,  said that Britain should leave the EU, and why he advocated a no deal Brexit. Not that it will save the pound. It won't. But it will mean a seat at the 'real' table...which is not in Brussels – but in Washington and New York.

Presently,the Aussie Dollar and to a lesser extent the New Zealand Dollar are solid indicators of what might happen with the Euro, and lately the tape has been going insane. So think about how smaller, yet developed,economies, like Australia, get financing.

They get it with US Dollars.

We like the fact that the Aussie-dollar has been a good early warning system of how the dollar trades. That helps anchor the trading day in the right frame of mind. Today has proved no exception. A weak AUD over the past weeks and especially in the Asia market today, has been perfectly reflected in the pounding that both the Euro and the GBP have taken today.

There will be plenty more of them in the not too distant future.

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