What is a Euro worth?

Posted by on May 25, 2012 in Commentary, Featured

What is a Euro worth?

I spent yesterday with many other traders at a trading conference in London. An enjoyable day in good company listening to some very good presentations and panel discussions. Naturally, there were many questions about the Euro and Greece’s (future) participation in it.

It is fair to say that pretty much everyone in the room (there were a couple of hundred or more) had a negative view of  the value of the Euro. But why? What is a fair price? Hasn’t all of the downside risk already been priced in? Wouldn’t the Euro be stronger without Greece?

Once you start asking these questions, you start to realise that every trader has a different opinion. But the herd mentality of trading is carrying the Euro worth ever lower. So how low can it get? Back in October 2000, €1 was priced as low as US$0.8225. That puts today’s price some 50% higher than October 2000.

If the Euro is a dead currency, it is significantly over priced right now. The market has taken account of this though and is not assigning the Euro to the bin, at least not just yet. To put a fairer price on the Euro, you have to look at the other currency choices.

The US Dollar remains the world currency and the currency of choice. And yet they keep the printing presses rolling, lowering the real value of the dollar. Then there is GBP (£ sterling). Having spent much of the past decade between $1.40 and €1.50 to £1, the Euro has appreciated in value. Look to the devaluation of sterling for the reasons, caused by running those printing presses again (a.k.a. quantitative easing).

The more the subject is examined, the more different opinions emerge. Forex trading is evidence based on what is happening right now, not what might happen next month. Successful traders trade facts, not opinions. There is only one fact, that’s the current price. As for the price next week,  I’ll have a better idea at the end of next week.