Stock outlook a rising stock market vs. a bleeding euro seeking alpha exchange rate pound to dollar history


Something has got to give euro today rate. While stocks have been rising, the euro has been bleeding. If history is any guide, this is a trend that may not last too much longer.

Here is the problem usa today sports page. The stock market (NYSEARCA: SPY) and the euro currency (NYSEARCA: FXE) have always had a very close marriage. From the day that the euro was introduced as legal tender on January 1, 2002, stocks and the currency have essentially moved in lockstep funny quotes about marriage. Either both are rising or both are falling at any given point in time. This is largely due to the fact that the movement of capital out of the United States and to Europe is a reflection of the increased investor willingness to take on risk and vice versa. So when divergences have occurred in this relationship, they have lasted only a handful of months at most before the two converge back together.

The divergence between stocks and the euro began at the end of November binary to decimal conversion method. Both had been moving sharply lower since a short-term peak at the end of October. But while stocks began to rally on the news of another globally coordinated central bank intervention, the euro continued to tank.

Of course, the long marriage between the euro and stocks may have finally ended in divorce over the last few months 1111 number meaning. This is due to the fact that the European Central Bank, which has long been viewed as following a more restrictive course of monetary policy than its global peers, is now actively and aggressively expanding its balance sheet. In other words, the flood of liquidity by the ECB that is weakening the euro may be contributing to rising stock prices.

But here is the problem gender definition psychology. The underlying problems in the Eurozone continue to deteriorate. And given the fact that relative interest rates in the Eurozone remain attractive relative to both the United States and Japan despite their massive backdoor quantitative easing via the 3-year long term refinancing operation (LTRO), it is just as likely if perhaps not more so that the decline in the euro is a reflection of mounting concern about the ongoing viability of the currency as it is a reflection of recent currency debasement.

As a result, we are likely to see one of two following convergence outcomes in the coming months usd eur graph. Either the situation in the Eurozone begins to stabilize and the euro currency rallies to catch up with the stock market, or the stock market eventually rolls over and heads lower toward the euro.

The risks remain biased toward stocks eventually plunging toward the falling euro in the coming months us stock market cnn money. The following reasons support this conclusion. First, the financial crisis in Europe continues to deteriorate and the regional economy headed toward recession euro chart 2016. Moreover, we are only one shock event in Europe away from a market that is suddenly cascading lower. Beyond Europe, stocks also remain overvalued relative both to their historical average as well as where they have typically bottomed during past secular bear markets joy news ghana. In other words, we have not likely yet seen the final washout in stocks for the current secular bear market cycle.

And with corporations already operating at peak profit margins and corporate earnings facing increasing headwinds in the coming months from a slowing Europe, the downside pressure from valuations is likely to build.

And if the final months of QE2 in the U.S. is any guide, the marginal benefit from additional rounds of monetary stimulus may be increasingly diminishing.

Instead of stocks, gold (NYSEARCA: GLD) and silver (NYSEARCA: SLV) may end up being the ultimate beneficiaries of this seemingly endless central bank largesse, as investors become increasingly inclined to secure hard asset protection against further global currency debasement. And while stocks have shown the propensity to thrive with monetary stimulus and collapse without it, both gold and silver have shown the ability to rise with or without stimulus in recent years.

While the ongoing flow of monetary stimulus from global central banks is likely to continue juicing stock prices in the near-term and may prolong this convergence, the underlying realities have not changed. It is simply only a matter of time.