Indication Of Euro Strength Against The U.S. Dollar
I wrote about the correlation between the EUR/USD exchange rate and eurozone bonds in a previous article. Based on that article, I believe however is the time to sell U.S. government bonds for eurozone bonds, because we are going into a period of euro strength. Chart 2 gives evidence to this claim: the red graph is forming a top, during the blue graph is forming a bottom.
On the fundamental side of the currency markets we note that the ruling on Obamacare will have significant impact on the U.S. dollar. Douglas Holtz-Eakin, former director of the Congressional Budget Office, estimates that the change would result in increased annual expenditures of up to $US 100 billion. This increase in budget deficits will weaken the U.S. dollar and U.S. bond markets. $US 100 billion should not be ignored, because it is 10% of the current budget deficit. As a result, the euro posted its biggest gain against the U.S. dollar since October 2011. Gold was up 3% on debt worries due to the Obamacare ruling.