December 16, 2018 | A Grim Forecast for the Euro — and the EU

With the uncertainties of Brexit weighing on Britain and the EU, their respective currencies have been taking a beating. The euro is in a long-term bear market that has seen a drop from $1.60 in 2008 to a low early last year of $1.03.  Over that time, sterling has fallen from a surreal peak of $2.11 to a sobering $1.20. Although these trends do not speak well for the economic and political future of the European Union, they have at least delayed its demise.

The real losers are German consumers of imported goods and services, since the D-mark would likely have lost little or no purchasing power globally if the currency were still around. This can be inferred from the relatively moderate, 28% drop that has occurred in the Swiss franc despite the burghers’ diligent efforts to squash it to shield exports from the currency riff-raff of the world.

As Old as Prostitution

To give Brussels its due, trashing sovereign money is an extremely competitive game. That’s because the global currency regime over the last century has amounted to a never-ending Devaluation Olympiad. The game is as old as prostitution, and all of the players at one time or another have been hellbent on using devaluation as a tool to boost exports. China’s rising hegemon has raised the level of play, sort of like a Cuban baseball team insinuating its way into the Major Leagues.

Regarding my outlook for the pound and the euro, the former looks like a good bet to fall at least to the $1.04 target shown (click on inset). You can expect a powerful bounce from that ‘Hidden Pivot’ support, but once it runs out of steam the relapse could take sterling down into the mid-$0.80s.  As for the euro, currently trading for around $1.14, it looks all but certain to fall to at least 1.07 over the near term. (Click here for chart.) If that Hidden Pivot support should fail, however, and fail badly, we might expect to see a bear-market washout down to as low as $0.89.

Rick Ackerman December 16th, 2018

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