Emperor’s new clothes

2010 is shaping up to unveil the underpinnings of the Emperors new Underwear, aka EUR, okay the acronym sucks but hey gimme a break this isn’t my day job.
The start to the year throws up a few cracks in the single currency, its performance, and perhaps more crucially, its weak links.  Already there are ruminations and a couple of studies being conducted on the potential to decouple from the Euro.
Greece is feeling the pressure to knuckle down and suck up whatever the ECB imposes on it to continue with its (turning out to be) expensive inclusion in Euroland.  Euroland was coined back in the 1990s as an ‘alternative’ to the ‘Eurozone’ official title being bandied about by the numerous think tanks and spin doctors, or anyone being paid a ‘shed load’ to coin a 2008 resurrected phrase, ‘to put lipstick on a pig’.
It’s nice to see a near decade-old phrase being used in everyday language, but more importantly it is perhaps signaling resurgence in the Eurosceptic.  The euro should smooth out the highs and lows of economic activity in ‘normal’ times. What it is proving is that it can penalise the wayward countries which don’t quite fit the GDR economic super plan.  Think Ireland, Spain, Greece et al, anyone who is not ‘old school Europe’ is getting a tough deal. Those cozy cousins who set the rules, set the bar, and prosper no matter what continue to do quite well thank you…so much for socialism.
Ok so we have trashed the euro, what to buy? Smart money is split between the Japanese yen and the dollar.  The yen has the potential to slide into oblivion. Its current value is historically above its comfort zone. The economy will not generate positive interest rates for too long, so it becomes a relatively expensive currency to buy and hold (in the future), however, and there’s always a but, on an apples to apples comparison buying Yen vs buying dollars is a bit of a no cost option.  There is a slight positive gain in holding Yen over dollars, something not seen before in my lifetime trading (and that’s quiet a while before any smart individual chips in).  So if you are bullish on Yen, now is the cheapest time to go long of the stuff.
Is Sterling emerging from its tomb?  Time to buy? Chances are, and I’m covering a few bases here, that it’s worth a buy below 1.60 and worth a sell over 1.70.  It’s an election year in the UK this year. Speculation has it late April, early May so any sterling moves before that are probably worth trading.

Disclaimer: The views expressed are the opinions of the writer and whilst believed reliable may differ from the views of Butterfield Bank (Cayman) Limited.  The Bank accepts no liability for errors or actions taken on the basis of this information.


Money Markets by Butterfield Bank’s Phil Turnbull