For fans of waves and long-term historical repetitions, we present a reader’s long-term Euro observations. Have at it:
Since Nixon abandoned the Gold Standard in Aug 1971 (TSY SCY Connally to the French: ” The dollar is our currency but it is your problem”), the Euro (synthetic reconstruction prior to 2001, courtesy of www.netdania.com) has turned with quite some regularity, on avg about every 89 month (7.4 years). In fact the last leg that started with a low in 9/2000 would be due in Feb. 08, which also happened to be the highest monthly close. So by that rule it comes to no surprise that we turned about 2 years ago due to technical timing aspects. Only 15% later did Greece get backed in as a “fundamental” catalyst.
What will happen from here? If history holds, and I think it will, the Euro should continue its slide into the summer of 2015 or thereabouts.
Our quantitative model suggests that we most likely would touch on par sometime towards the end of the cycle. Nevertheless, we will have the usual corrections on the way.
It is likely, that in turn would not bode well for Gold and the drop could possibly further magnified by high US interest rate SPREADS over the ECB rates, but that is just conjecture.
In the very near term, we still have a +10% potential (1.51) if we don’t take out the 1.35/1.36 area.
We note it’s a little hard to see the chart, so we’ll annotate:
- The “synthetic Euro” hits a high in 1978.
- Then the euro hit a low in 1985 coinciding with the Plaza Accord (more here)
- In then rallied until 1992 when Soros attacked the UK.
- It bottomed in 2001 at the beginning of the Bush era
- It then peaked right before the financial crisis of 2008
- Next… a bottom a 2015?