Back in the spring when everyone was worried about the euro going back to par, you remember that in this blog we got very bullish on the euro.
Much of it was sentiment we just saw that was just too bearish on the euro.
The daily sentiment reading of currency traders towards the euro hit 2 percent in May. Usually when too many people think the same way, the market has a way of reversing itself.
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However, it wasn’t just sentiment that had me bullish on the euro while others were too bearish.
In the spring, we could see European governments getting their act together.
Cutting spending, turning to austerity to curb out-of-control deficits.
The British budget slashed departments by 30 to 50 percent and raised the VAT to cut the deficit in the U.K.
In the U.S., we have heard no such talk. In addition, the Fed is talking of QE2 (printing money to prop up equity prices) which just devalues the dollar more.
Right now, every level of the federal government doesn’t care about the dollar.
Politicians are making no attempts to cut the deficit, the Fed is just talking about more money printing. This is why the euro hit the highest level since the spring and is back near $1.34. It is also why gold is soaring. I don’t see this changing any time in the near future.
This is what happens to superpowers. The Romans did it, the British did it.
You become the reserve currency and it leads to arrogance. You don’t think the rules of economics apply to you. However, they do apply.
The market will teach the politicians and the Fed a lesson, but by pushing the dollar lower and sending commodity and gold prices higher.
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