The decline in the EURO and the pound is driving global investors out of the EURO/pound and into Gold, Dollar and Treasuries. As of this note the EURO was trading at $1.23 off of its low of $1.2235 and the pound was ta $1.44.71 again off its low of $1.4253 over night. I had foretasted last year that I expected the EURO to fall to $1.25 and the pound at $1.50 before their was a significant reversal. I do think there will be a reflex rally in both the EURO and the Pound with prices up to $1.30 and $ 1.55 range respectively.
I see a new near-term low being set in both by year-end 2010. I would not be surprised to see the EURO in the $1.05 to $1.10 and the pound in the $1.25 to $1.35. These levels, if attained, may not be the final bottom in the currencies. If your plans call for going to Europe this year later might be a lot less expensive than now.
What is driving the decline is a falling confidence not in the EURO but the economy in Europe. The central government is giving money away to stem the tide and they will be force to cut short-term interest to close to zero to try and stimulate their economy(heard that before).
Key levels to watch on the S&P 500
People want to ignore the May 6 inter day low of 1065 on the S&P 500, I think that is a mistake. I think it was a precursor of what is to come. What we now know is that the trade was not the pushing of the wrong key is was that buyers stepped away from the market and the computers took over control to try and provide an orderly market.
Last week's rally stalled below the 50-day moving average. I see resistance near 1175 on the upside. As I said last week I do think we could test the 950 by mid July and given the recent market action I think I'm more convinced that we will get there. I see nothing coming out of Euroland to change my mind.
One quick thought about gold. Some of the Gold Bugs are saying that Gold could go to $1,500 to $1,800 by the end of the year. I have written about the risk of buying gold see my Blog Site www.moneyinmot.blogspot.com. Keep in mind that the rise in gold, I think is tied to the EURO. Any significant reversal in the EURO will see a reversible in Gold.
As much as our Government Leaders want us to believe that everything is OK, hear Europe has its own problems that won't effect us, remember this statement,"The problem in the mortgage market is contained and is not going to affect the rest of the economy."