Key Misconceptions About Euro Debt

01/25/2012 9:45 am EST

Focus: FOREX

Rob Booker

Author, Man Vs. Market: Lessons from Trading on the Road

Greek debt inexplicably became the focus of the financial world, says Rob Booker, who expects continued euro weakness to present more buying opportunities in the EUR/USD pair.

All eyes have still been on Europe these past few months, and the problems they’re having with the debt, but what is it going to do to the euro and even the US dollar?

Our guest is Rob Booker today to talk about his thoughts there. Rob, as we finish out 2011 into 2012, what are your thoughts here on the euro as we stand now?

First of all, I’m glad you didn’t use the word "Greece." If anybody give me another sentence with the word "Greece" in it, I’m going to throw up!

It’s as if this small country has become the center of world economics; that it’s going to bring down the entire financial system. I’ve renamed Greece like "Greeceissippi" or "Greechigan," because it’s almost become a part of the American economic system.

My viewpoint is that it’s going to affect the euro. It’s definitely going to have a three-month window and affect on the euro, and in particular, the euro (EUR) against the US dollar (USD). We’re going to see a major response in that currency pair.

But as far as American consumers surviving, or the US stock market, it’s really hard to find how Greece in particular has a big, long-term, detrimental affect on our financial system in the States.

As far as the currency markets are concerned, there’s a definite worry that even though maybe Greece isn’t as significant as everybody thinks it is, it’s going to put some major pressure on that currency pair.

Alright, so the question then becomes what is the trade? Is it just long the EUR/USD currency pair, futures; what do you like from here?

In order for the EUR/USD to return to its highs in the 1.60 range, we’re going to have to see a major additional round of quantitative easing by the Fed. It’s not going to happen.

I wrote a letter to Ben Bernanke last week, and he didn’t even reply! No, I’m just kidding, but the Fed doesn’t want to do it. It’s highly unlikely that we have the political environment necessary to do that.

If we don’t have the political environment necessary right now in the States for further quantitative easing with some GDP growth here, there’s nothing in the way of the European weakness trashing the euro down into the mid 1.20’s.

So I’m looking at a mid-1.20’s target on the EUR/USD in particular, because you have a Fed that has to step aside politically, economically, even financially. We just don’t have the revenue that we thought we might have.

You have the European Union in complete disarray as far as Greece is concerned, and then we have Italy. A new financial structure in Italy, a new government in Italy, a major political movement to split the country in half.

Then we have Germany that isn’t even fully invested in the process of recovery or getting out of this problem, so the Euro has major pressure on it. I’d say any move into the high 1.30’s or the low 1.40’s on the EUR/USD is an opportunity to sell that into the 1.20’s.

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