A cheap-euro-is-a-good-thing

A CHEAP EURO IS A
GOOD THING
By www.ForexConspiracyReport.com

http://www.forexconspiracyreport.com/a-cheap-euro-is-a-good-thing/
The European Central Bank is starting
a quantitative easing campaign and,
as expected, the Euro is falling.

The consensus of finance ministers in
Europe and European stock markets
is that a cheap Euro is a good thing!

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Before We Continue…

This is a useful thought to keep in
mind when trading the Euro against
the US dollar as the dollar is likely to
rise due to the Fed raising interest
rates and the Euro is likely to keep
falling as the Euro Zone prints money
to buy bonds.

How is it that a cheap Euro is a good
thing?

Stimulus Instead of
Austerity

The Wall Street Journal reports on
how the European Central Bank head
defends the ECB stimulus program.

European Central Bank President
Mario Draghi on Wednesday
defended the bank’s decision to
launch a massive stimulus program
centered on large-scale purchases of
government bonds, saying such
policies are a standard part of the tool
kits of central banks around the world.

“Asset purchases are unconventional
but they are not unorthodox.

In fact they are eminently orthodox,”
Mr. Draghi said at a conference of
economists and central bankers at
Goethe University.

He said asset purchases are “nothing
new” and were even deployed by
Germany’s Bundesbank in the 1970s.

Mr. Draghi’s remarks came two days
after the ECB starting buying large
amounts of government bonds and
other debt instruments under a
program known as quantitative
easing.

The plan was approved by the ECB’s
governing council on Jan. 22 despite
opposition from Bundesbank
President Jens Weidmann who said
Monday he was “skeptical” that more
expansionary policies were needed.

When the stock market and real
estate market crashed in 2008 it
sucked $7 trillion in assets out of the
global economy.

The EU followed the course that the
USA did after the 1929 crash.

They tightened up monetary policy,
killed credit and promoted fierce
government austerity.

The result was unemployment in the
25% range in countries like Spain and
50% range in countries like Greece.

Luckily the head of the US Federal
Reserve at the time of the 2008 cash
was Ben Bernanke who is a
recognized expert on the causes of
the Great Depression.

His Federal Reserve opened the
spigot and bailed out banks and
General Motors.

The Fed instituted a quantitative
easing campaign to the tune of $85
billion a month to purchase treasury
bills and corporate bonds.

Today the USA is out of the recession
with the lowest unemployment rate in
decades and an expanding economy.

Stimulus seems to work and the EU is
finally coming around and trying it.

Who Is Happy with a Cheap
Euro?

Anyone owning stocks in Europe is
happy as the markets, especially the
German DAX, are up.

MarketWatch report that European
stocks are up with German stocks
leading the pack.

European stocks climbed Monday,
with a new milestone for German
stocks highlighting the flood of money
that’s been rushing into the market as
the European Central Bank embarked
on its massive asset-purchase
program.

The Stoxx Europe 600 DAX, +2.56%
rose 0.7% to 399.21, with only the
utilities sector SX6E, +0.76% lagging
other groups.

Stocks found early support in part
after the Chinese government over
the week pledged to bolster economic
growth.

Top advancers on the pan-European
index included Balfour Beatty PLC
BBY, +1.67% with shares of the U.K.
construction and engineering services
company rising 3.3% following a
ratings upgrade to buy from
underperform at Jefferies.

The point of this rally is that investors
expect the stimulus program to pump
some life into the European economy
and especially to help exporters who
products will be more competitive due
to a cheaper Euro.

How to Trade the Euro

The Financial Times gives their
thoughts about quantitative easing.

It is unclear how much the
depreciation is a signal that QE is
working rather than an actual
mechanism by which it works but
indications that the programme is
beginning to have some effect are
welcome.

There remains considerable
disagreement about how QE
functions.

The way it operates in the eurozone is
likely to be different to that in, say, the
US, given the contrasting structures of
their financial systems.

But a very simple way of looking at it
is that QE involves boosting the
supply of a currency.

It would be surprising if that did not
lead to it falling in value.

The point of all this being that the
Euro may well continue to fall so long
as the European Central Bank prints
money to buy bonds to stimulate the
Eurozone economy.

A cheap-euro-is-a-good-thing

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