Let me state that I don’t like the euro.
I have been bullish in the last few weeks because I don’t see the euro ending its existence and because when pessimism is too high, that’s when you buy.
We have seen relentless pessimism regarding the euro.
The Daily Sentiment Index, a reading of currency traders’ feelings toward the euro, hit 2 percent bullishness on the euro a few weeks ago. This is the lowest reading since 2006 when the euro began a rally that saw it climb from 1.15 to 1.60 during the next two years. This is a very good indicator which can show us massive inflection points. For example, near the dollar’s bottom last fall, the reading hit only 3 percent bullishness on the dollar.
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The long-term problem is that I am not pro-dollar or pro-euro. They are both terrible currencies.
If you put a gun to my head, I would probably take the euro at the moment because the European governments have begun austerity programs and are cutting spending and government debt. The U.S. is printing and spending.
However, in the long term, both currencies will continue to devalue against real goods. They may rally and fall against each other, but they will continue to fall against gold and other commodities.
Because they are both terrible currencies, it will hide the real weakness in both as they trade up and down against each other.
This means that if you really want to protect your assets you need to look at hard assets.
Gold. Oil. Agriculture. Energy. Stuff in the ground.
As Europe and the United States devalue, these assets will go up in the long term.
This has already started in the last 10 years. Ten years ago, oil was about $20; it is now $75. Gold was $300; it is now $1,200.
This trend will continue as we see the increasing expansion of government and monetary stimulus to solve problems.
Sure, the euro is good for a trade at the moment.
However, the long-term way to protect yourself isn’t by trading the euro or the dollar but by being long commodities and inflation hedges.
About the Author: David Skarica
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