UndercoverElephant wrote:Suss,
The point I was making is that the people who are currently investing in dollars will need somewhere else to put that money. What are they going to choose instead? Looks like they've got a choice between commodities and other currencies. If they choose another currency, the least bad of the bunch is the Euro. Whatever structural problems you see in the Eurozone, the Euro is still the least bad option.
Why must they choose something else? Bear in mind that speculative "investment" is only part of the story. People also buy dollars for the mundane reason that they need to pay for goods and services in dollars. For all the chit-chat about a flight from the dollar, a huge chunk of goods and services (for example the entire US economy, all non-Iranian oil, most Asian manufacturing) is still denominated in dollars. Maybe that will change, but it hasn't happened yet, nor do I see why it should be a fait accompli.
Anyway, what you seem to be saying is that the Euro is a long term buy. If this is the case then I assume that although you have not articulated it you have some kind of argument to back up your view. For example, you may think that the interest rate differential is important; you might expect the shift away from the dollar mentioned above to make a strong Euro more likely, or you might think that Eurozone is going to grow in aggregate more quickly than the US and offer more attractive opportunities for investment.
I have no such view or supporting argument because (as already mentioned) I don't regard myself as being knowledgeable enough or clever enough to be able to forecast the forex markets with any consistency. If I were that smart I would be a fabulously wealthy man and long since retired. Instead I am just clever enough to know how little I know, which puts me ahead of most people.
On the other hand, personal experience has convinced me of the truth of the following three precepts. First, nothing is easier or more dangerous than making a prediction that a particular stock or currency pair will continue to trend in the same direction. Second, reversals in a trend appear wildly unlikely until after they actually happen, by which time it's too late and you've lost a painfully large fraction of your money. Third, even if you have a perfect fundamental justification for the Euro being stronger or weaker than another currency - warning: cliche ahead - the market can be "wrong" in defiance of the fundamentals for longer than most participants can remain solvent.
So if you're taking positions in the Euro/USD pair, be careful eh.
Suss
