Steen Jakobsen, chief economist for Saxo Bank sees 4 big advantages for the US dollar in the foreseeable future. Together with the raging European debt crisis, he predicts that EUR/USD will take a major hit and will eventually slide from the current range to much lower ground: 1.10 to 1.15 by the end of 2012.
The euro was launched in 1999 with an initial value of $1.17, so this would be a big blow. Jakobsen has a forecast of a 25% rise in the dollar during 2012, and the “free-fall” of the euro-zone economy since July makes euro/dollar a good candidate.
Mish brings Jakobsen’s analysis. Here’s a quick quote:
My bullishness is relative, but the biggest contributors to long-term wealth tends to be your choice of currency. I have a target of 100 in DXY for next year, so a 25% rise in the US dollar during 2012 – and in EURUSD terms the expected move is changed range from 1.30/1.40 now to 1.20/1.30 on ECB rolling over, another 5-6 figures on interest rates, and then HIA II we end around 1.10-1.15 for 2012 end target.
I also share the bearish sentiment on EUR/USD. I don’t think that the euro will break up, but rather see two major differences:
- Growth differences: Jakobsen discusses this point. While US growth isn’t impressing (to say the least), the euro-zone is in much bigger trouble.
- QE difference: The US dollar weakened on huge quantitative easing programs, while the ECB avoided it at all costs. Contrary to Jakobsen, I don’t see more QE in the US, but I certainly agree that the ECB will be forced to act.