Forecasters Split on Euro; Wells Fargo Sees Fall

2012-01-09T05:10:00.000-08:00

By Allison Bennett and Lukanyo Mnyanda - Jan 9, 2012 6:04 PM GMT+0800

The most accurate foreign-exchange forecasters say the euro will depreciate against the dollar for a third straight year, equaling its longest slump since its creation in 1999, as Europe slips into recession.

Nick Bennenbroek, the head of currency strategy at Wells Fargo & Co., who topped the list for the third time in five quarters as measured by Bloomberg News, expects the euro to drop in the first six months to $1.24, from $1.2961 at the end of 2011. Westpac Banking Corp., which has had the second-lowest margin of error for two consecutive surveys, predicts $1.20, as measures by the European Central Bank fail to keep the region’s sovereign-debt crisis from worsening.

Two years after Greece admitted to misrepresenting its budget deficit, Europe’s debt crisis is infecting the region’s biggest economies, just as the U.S. shows signs of strengthening. Sovereign borrowing costs continue to soar even after the ECB, which meets this week, cut interest rates twice in the last two months.

“The European Central Bank will continue to ease aggressively in 2012 as recession approaches in Europe and the U.S. numbers remain resilient,” Bennenbroek said during a Jan. 4 telephone interview in New York. “All the fundamentals strongly argue for euro weakness.”

Worst Performer

The euro strengthened 0.5 percent to $1.2777 as of 9:53 a.m. inLondon after dropping 1.9 percent to $1.2717 last week and weakening from last year’s high of $1.4940 in May.

It depreciated 3.2 percent in 2011 and 6.5 percent in 2010, and was the worst performing currency of 2011 versus nine developed-nation counterparts as tracked by the Bloomberg Correlation-Weighted Indexes. The 17-nation currency lost 2 percent after erasing a gain for the year as recently as November as Greek and Italian lawmakers ousted their leaders, according to the gauge.

The most-bearish forecaster sees the euro at $1.17, while the most optimistic call is for a rally to $1.45 by mid-year. The median of the 40 estimates is $1.30 by 2013.

Euro-area leaders’ attempts to solve the region’s debt crisis, which led to bailouts of Greece, Ireland and Portugal, will continue at a meeting today between French President Nicolas Sarkozy and German Chancellor Angela Merkel in Berlin. Euro-area finance chiefs convene in Brussels on Jan. 23, with government leaders gathering a week later.

Euro’s ‘Mirage’

ECB President Mario Draghi, who succeeded Jean-Claude Trichet in November, offered unlimited three-year cash at 1 percent last month to persuade banks to keep providing credit to the region. The injection helped bring down borrowing costs for Italy, Spain and Belgium.

“We would regard the recent stability in Europe as a mirage and we expect growth to severely underperform even the most bearish expectations as a combination of deleveraging, austerity, huge confidence shock and tight financial conditions all wreak havoc on the economy,” Richard Franulovich, a senior currency strategist at Westpac Banking in New York, said in a Jan. 4 telephone interview.

The European Commission cut its 2012 growth forecast by more than half to 0.5 percent in November. The median estimate of 15 economists surveyed by Bloomberg News is for the region’s economy to contract by 0.1 percent in each of the first two quarters this year, while a separate survey shows the U.S expanding 1.9 percent and 2.05 percent.

Margin of Error

Even with a euro forecast that bounced from $1.37 to $1.24 in 2011, Bennenbroek and Wells Fargo senior strategist Vassili Serebriakov’s core case of superior U.S. growth gained them the best overall margin of error of 3.98 percent across 13 currency pairs in the six quarters ended Dec. 31.

That was the lowest since the survey began in the second quarter of 2010, even though they didn’t place among the top five most accurate euro strategists.

Westpac, the fourth most-accurate euro-dollar forecaster, expects the shared currency to weaken through December as the ECB lowers interest rates from 1 percent to about zero and the possibility of Greece exiting the euro resurfaces.

“It’s a cataclysmic scenario for Europe and an environment where the euro trades very badly,” Franulovich said.

The ECB meets Jan. 12 and is predicted to leave rates unchanged (EURR002W) after two consecutive reductions, according to the median estimate of 34 economists in a Bloomberg News survey.

JPMorgan Chase & Co. and Oversea-Chinese Banking Corp., the next two most-accurate, see the euro rebounding by June as the ECB keeps the debt crisis from worsening. National Australia Bank Ltd., which rounds out the top five, expects no change.

Recovery Scenario

The ECB will step up purchases of bonds from nations whose borrowing costs are rising to unsustainable levels as governments institute fiscal reforms, according to John Normand, the London-based global head of currency strategy at JPMorgan.

“The ECB will not make a bargain explicit, but I suspect they will increase debt purchases if reform legislation is implemented,” Normand said in a Jan. 5 telephone interview. Coupled with lower interest rates, “the euro should stabilize, then rebound,” said Normand, who expects the euro to gain to $1.34 by the end of the second quarter.

Italy, Spain Austerity

Mario Monti, the former EU commissioner who became Italy’s prime minister in November, spent his first month in office enacting 30 billion euros ($38 billion) in austerity and growth measures aimed at taming the world’s third-largest debt load (ITDGRATE).

Spanish Prime Minister Mariano Rajoy, whose party ousted the Socialist Party in November’s elections, announced 14.9 billion euros of spending cuts and tax increases on Dec. 3. Greek Prime Minister Lucas Papademos, committed his government to reform and said last week that cuts in income are the only way to stay in the euro.

JPMorgan, based in New York, slipped to third place in the rankings from first last quarter as an expanding U.S. economy damped speculation that the Federal Reserve would further ease monetary policy, hurting the dollar.

Housing, consumer confidence and manufacturing data exceeded analysts’ estimates (CESIUSD) in the final months of 2011. The economy added 200,000 jobs in December, reducing the unemployment rate to 8.5 percent, the lowest level since February 2009, the Labor Department said Jan. 6.

European leaders’ Dec. 9 pledge to form a fiscal union, “and getting over the first-quarter hump of refinancing by several of the euro-zone countries may give some room for a return of risk appetite, which explains the profile we have for euro-dollar to stabilize into the middle of this year,” Emmanuel Ng, a currency strategist at Oversea-Chinese Banking in Singapore, said Jan. 5 in a telephone interview.

‘Looser Monetary Policy’

Oversea-Chinese Banking was the fourth-most accurate forecaster for the second consecutive quarter and had the second-lowest margin of error on the euro versus the dollar. It expects the euro strengthen to $1.35 by year end.

“The differential between the economic performance of the U.S. and Europe will contribute to some negativity on the European currency,” Rob Henderson, chief economist for markets at fifth-ranked National Australia Bank, said by phone from Sydney on Jan. 5. “We also expect that the ECB will in one way or another be running looser monetary policy whereas the Fed is pretty comfortable at the moment with keeping policy where it is, so that’s another negative for the Europeans.”

National Australian forecasts the euro ending the current quarter at $1.25.

Strategists were ranked according to the accuracy of their estimates for 13 currency pairs in each of six quarters beginning with the three months ended Dec. 31. To test long-term accuracy, Bloomberg News added one annual forecast, which was made in December 2010 for December 2011.

Only firms with at least four forecasts for a particular currency pair were ranked, and only those that qualified in at least eight of 13 pairs were included in the ranking of best overall predictors. Thirty-six firms qualified.

To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net; Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

To contact the editors responsible for this story: Dave Liedtka at dliedtka@bloomberg.net; Daniel Tilles at dtilles@bloomberg.net

Want to save this for later? Add it to your Queue!

eToro’s CopyTrader is Here! Get Ready for a New Way to Trade

2012-01-02T23:56:00.001-08:00

Copy-trader Review

Let’s say that you’re one of the thousands of people who would like to give currency and commodities trading a try but don’t have time to learn all the different trading strategies, to follow economic data releases or to analyze market movements on a daily basis. Up until now, you would have had to simply give up your dreams of financial glory, but with eToro’s groundbreaking new CopyTrader feature, that is no longer the case!

CopyTrader is a new function of eToro’s social trading network. The genius of CopyTrader is that it lets you take advantage of the knowledge and expertise of other traders on a regular basis. All you have to do is choose which profitable trader you wish to follow by looking at the rankings and checking out the traders’ success rate, trading style, number of followers, etc. Once you find the trader or traders for you, all it takes is a click of the button and his or her trades will become your trades.

It may sound simple, but this is a genuine revolution in the world of currency and commodities trading, a shift from market-based or financial-instrument-based trading to people-based trading. Instead of agonizing over which currency to buy or sell, the only decision you now have to make is who you want to trade for you and how much of your account you want to dedicate to copying each trader you select. The more traders you copy, the more diverse your risk portfolio.

Of course, you still maintain full control over your trades. All the parameters are completely transparent, starting with the spread and ending with the percentage of your balance that is invested in each trade. Don’t like the way a trade is going, or want to capitulate on the profit right away? There’s no need to wait for your trader to make a move - you can close a trade or edit the stops whenever you want. And if a trader’s strategy is not working for you in general, it only takes one click to detach yourself from him or her.

The ultimate goal, as you can probably imagine, is to assemble a dream team of diverse traders who you can copy indefinitely and then simply watch your profits accumulate. Unlike forex robots or paid traders, the traders you copy through CopyTrader have no agenda other than to make profits for themselves, so you never have to worry about them mismanaging your funds. In addition, for the sake of promoting responsible trading, CopyTrader only lets you set aside a maximum of 20% of your account for copying any one trader, to ensure the diversity of your trading portfolio.

eToro also intends to launch a Guru reward program in the very near future, to compensate traders with a large following for all the benefits they bring to the eToro trading community.

CopyTrader is now available on eToro’s social trading network. Click here to check it out now!

About eToro

eToro is the world’s largest investment network, with over 1.5 million users in over 130 countries and thousands of new accounts opened each day. Through its community powered network eToro leads the social trading revolution, which enables every investor to see, follow and automatically copy the actions of other investors in real time.

eToro’s mission is to open the financial markets to every individual and make them accessible through a simple, transparent and more enjoyable way to trade currencies, commodities and indices online. Based on a wide range of innovative web-based and mobile trading platforms that appeal to every level of trading expertise, eToro’s investment network facilitates information exchange between investors, accelerates knowledge sharing and shortens the learning curve for those who want to bring their trading experience to the next level. For more information, visit us at www.etoro.com.

eToro’s advantages include:

Social trading network - including the groundbreaking CopyTrader feature
Simple visual web based trading platform
Free unlimited demo account with live market rates
Public and private chats
Prize bearing trading challenges
Flexible leverages ranging from 1:2 to 1:400
Fixed spreads as low as 2 pips
Free educational tools, including specially developed forex trading e-course
Live streaming news and market updates
24/5 professional support and account managers
Four tier VIP account program
Starting bonus of up to $10,000

To find out more about eToro and to open your free account, click here.

eToro Forex Trading

Active Search Results Page Ranking Technology

eToro CopyTrading