Single currency euro money disintegrate market
If you pay attention to finance and economics, you probably understand the common argument against the U.S. dollar:
The Federal Reserve’s monetary policy of targeting price levels and full employment, when extremely accommodative, reduces the value of the currency as money supply grows and interest rates are kept low.
That’s why the ongoing campaign by the Federal Reserve to stimulate the economy via quantitative easing, Operation Twist, a 2 percent inflation target (an unconditional aversion to deflation), and an extended period of lowly managed interest rates is such a downer for the greenback.
The markets have seized on the monetary (and fiscal) headwinds blowing hard against the dollar. But everything that’s happened in the U.S. financial system in the last 3+ years has happened or is still happening in Europe.
Why doesn’t the euro seem to be at the
mercy of Europe’s monetary/fiscal backdrop?
Despite all the money the ECB/EU/IMF threesome have committed to alleviate financial system pressures, the euro has not behaved in similar fashion to the dollar! The reason is quite simple, but the understanding is rather complex.
I could tell you the euro is a sort of alternative reserve currency and moves inversely to the dollar based on capital flows. And then I’d be done and tell you to go have a nice day.
Source: Money and Markets
Fibonacci Analysis (Bloomberg Financial)
Book (Bloomberg Press)
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