If you want to trade on fundamentals, you have to keep an open mind. I once believed in the euro but now I just don’t see a way out of the crisis with the current framework.
There is too much debt, unemployment and bureaucracy for the periphery to grow at a sustainable pace.
Most of all, I’m not convinced that politicians get it. When Monti blames ‘negative comments’ for Italian yields at 6% on the same day the IMF hikes its Italian deficit forecast, how can anyone have confidence in his leadership?
The euro puts all member nations on a level playing field and the South just can’t compete with the North. The productive capacity of Germany is already built up and entrenched. To overcome that, you need to match the productivity and offer some other type of advantage to make a move worthwhile.
When one country has grown accustomed to la dolce vida and another says that work makes life sweet, I can’t see a euro comeback.
Last week’s CFTC numbers showed a measly 9% cutback in euro shorts — which are at an extreme level — in spite of a nearly 300-pip squeeze. That tells me that shorts are supremely confident; even moreso now that they’ve been rewarded.
Watch out for bounces, but recognize that they’re selling opportunities.
