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Great Forex Profits Made Easy:

10 Things You Need To Know To Profit From EUR/USD :

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• 1). Despite recent strength, prospects for the EUR remain bleak

From conversations with EUR fund managers it is clear that prospects for the EUR remain at the center of

their concerns. In 2011 the EUR as a currency is being faced with its most serious crisis in its brief history.

And heading into 2011, important questions still remain unanswered. Looking at longer-term levels, the

average level for EURUSD since birth to day has been 1.18. Excluding the first few years before it has become

somewhat established, the average level is 1.30. So the EUR hasn’t collapsed – will it though?

• 2). If Spain defaults, the Euro goes (most likely)

A common metaphor for the EUR heading into year end has been the domino theory. Once one domino falls

(Greece), leading to the next over (Ireland) resulting then into pressure for Portugal. After Portugal, the EUR

would have serious problems because the next two largest economies would be Spain and Portugal. Both are

bigger, much more difficult to support and much more important for the EU as a whole. The market view is

that Portugal will require support over the next few months, and as a result additional pressure will result on

the Euro.

• 3). But the Spanish situation appears manageable

Spain is crucial, but the fiscal situation appears manageable. It has a large deficit but lower debt/GDP ratio

than Germany. The government plans appear sufficiently aggressive to bring sustainability fairly quickly,

provided the market is not against it. The banking sector appears in reasonably good shape. Like for Portugal,

the sooner sustainability is brought over, the better as far as EUR prospects go.

• 4). In Any Case, The USD Is In More Trouble

Despite these, in the longer term pressures on the USD should be greater. As a whole, growth in the EUR

area remains robust, led by Germany, and that should limit the amount of monetary easing implemented by

the ECB.

• 5). The Feb Is Overly Optimistic About Unemployment

The US situation is far from being solved. The unemployment rate is unlikely to fall back quickly, despite the

optimists forecasts by the Feb in the 9.2% region.

• 6). The US economy still needs to re balance.

Economists forecast the current account deficit to grow from 3.6% in 2010 to 5.2% in 2012. The Fed is

continuing with its loose policy, the Bush tax cuts and unemployment benefits have recently been extended

and payroll taxes have been cut. This would make the US the only nation in large government deficit

economies to delay strong action in reining in fiscal consolidation. Even if some of the federal government

needs are met through quantitative easing, this means the rest of the world will have to invest in US assets.

The US economy in aggregate will have to get as much funding from abroad. In the longer run, currencies

tend to gravitate towards an external fiscal balance which will put further pressure on the USD.

Commodity prices, and especially oil prices, are on the uptrend. This has historically been bearish for the USD

• 7). Despite Some Oil US Production, The USD Will Severely Suffer From Rising Oil Prices

for a number of reasons. First, it’s a negative for the terms of trade for the US economy. Albeit the US

produces more oil than Europe, it has a larger negative energy trade deficit due to its more intensive use of

oil. Secondly, because oil-derived money tends to a large extent to be parked in Europe. Hence this may

become an important negative for the USD in 2011.

• 8). But Rising Oil Prices Will Also Put Pressure On The EUR!

Although analysts are generally bullish commodities, they expect oil to be the worst performer in 2011. This

is going to put pressure on the EUR, in addition to the concerns on the peripheral EUR area we mentioned

earlier. However, the presence of the EU and of the IMF aid systems would suggest that the peripheral EUR

problems will not have a prolonged negative impact on global growth or commodity prices

• 9). Sentiment From Fund Managers Is The EUR Appears Over-Valued

…but things are not as bad as they seem for the EUR. A number of large issues loom for the common

currency but these seem under control. Ln the other hand, US employment will be high for some time and

commodity prices are on an uptrend, all of which is most negative for the USD

• 10). Risk To The Bullish EUR View – Peripheral EUR Problems Spread To Spain…

Risk to our bearish USD / bullish EUR view: the peripheral Euro problems (Ireland, Portugal, Greece) spread

to Spain. Spain is twice as large as any of the other countries that required assistance so far and if in need of

a bailout, it would pose significant systemic risk and pose a threat to global growth.

CONCLUSION

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