Currency Outlook: Post-Euro?

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

By Jason Pilling

NEW YORK (TheLFB-Forex) -- In the ongoing debt and bailout debacle, the euro is prone to speculative attacks that take EUR/USD spot forex or 6E Futures contracts down to test sub 1.3000 values. But these have not as yet been able to transpose itself into mid- and long-term action. The mainstream talking heads are extolling the virtues of a break-up of the eurozone economy as if it could be something seen in the near-term, and set up each day with a horse-race-type commentary that analyzes each micro-second of currency movement.

In reality a break-up of a union that has been built over the last three decades that consists of over 300 million citizens will not happen overnight, if at all.

Those looking for a fundamental collapse of EUR valuations each day may just want to look at what is on the other side of a EUR/USD trade. Is the U.S. situation really any better, or worse, than what is unfolding across the pond, given debt limits, debt ceilings, and super-committees unable to achieve a long-term solution?

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There was a month-end move that strengthened all major currencies (EUR, GBP, AUD, CAD, CHF, JPY) against the dollar, in-line with an equity trading session that saw risk being bought as LIBOR rates and Bullion Fixings were set in London for the last day of November trade.

The strength of correlation between EUR and the S&P 500 is running close to 1.0, which is not allowing any of the global asset classes to move against another. When equity indices are bought or sold EUR/USD values move in the same direction, with a slightly weaker EUR correlation only on the days of major breaking news headlines.

The globalization of daily trade has created an investment arena that will not allow a separation of the daily pattern that weighs equity risk directly against the dollar (global reserve and commodity currency). Forward outlooks in the eurozone are probably no better or worse than in the U.S., and until the spreads in inter-bank borrowing and debt insurance narrow the attention will continue to be on breaking headlines and reactionary automated algorithm trades. The volatility is being empowered by a lack of new investment cash hitting the markets, which allow low-volume ramps to dominate daily moves.