A short history of the EURO:Lagrange » Sat Oct 04, 2014 11:39 pm wrote:Yes clear Bob,
but:
' For example the eur/usd for the last 15 years has stayed between 1.25 and 1.50 with the exception of a handful of months in 2008.'
Is not on my monthly charts.
as I tried to understand:
If I go back 15 years on the EURUSD chart the lowest price was somewhere around 0.82 in 2000, the high at 1.60 in 2008.
So why saying its ranging the last 15 years between 1.25 and 1.50?
thanks Lagrange
The name euro was officially adopted on 16 December 1995. The euro was introduced to world financial markets as an accounting currency on 1 January 1999, replacing the former European Currency Unit (ECU) at a ratio of 1:1 (US$1.1743). Physical euro coins and banknotes entered into circulation on 1 January 2002, making it the day-to-day operating currency of its original members. While the euro dropped subsequently to US$0.8252 within two years (26 October 2000).
Once the physical money entered the market the EURO moved up until it hit its limit and then went into its normal range. For a currency to move out of its normal range extreme economic conditions must be happening to get it out of its comfort zone.
When a currency lowers, the price of its products get cheaper and it sells more of its products. (What JPY is trying to do to spur its economy) As price lowers volume of business increases, more people become employed, more jobs are to be gotten, wages increase with the demand of workers, people spend more money, inflation begins to rise, interest rates go down, investment goes up, debt goes up, etc. etc.
As inflation rises the brakes are put on to slow the increase so you dont have runaway inflation. Debt increases, people start spending less money to pay down debt, interest rates are raised to slow the overheated economy down. The currency begins to rise in value as the brakes are put on, people quit acquiring debt, with the rising value prices go up, less money is spent, companies quit investing, raises become stagnant, companines begin to lay people off, less efficient companies or ones without assets go out of business, a recession sets in, etc. etc.
The balance between the too extremes is the range of a currency. As we can see from the typical Euro range the price of the currency is entering its lower range of 2004,2005,2008,2010,2012. The real big boys will be preparing to start placing their buys. (Watch the COT reports) So when everyone else is selling the big boys are getting ready to place their buys because they understand that the EURO is nearing its bottom. The SNB is once again buying massive amounts of EUROs and Selling CHF because they can sit on a currency for months and years knowing that once it bottoms out, it will go up again.
If you trade low leverage, like 1:1, the difference between 1.25 and 1.20 is five cents. That is why traders trade in tiny fractions of a dollar, or euro, or jpy, etc. but the big boys trade in real money or pennies. If they buy in the 1.20 to 1.25 range and price goes to 1.50 like in Jan. 2008 and 2010 and you make 15-20% on billions and billions of dollars, like the big banks do, you can see the profit potential can be massive.
So if you look at the SNB reserves they are close to 47% of its holdings and they are now increasing their holdings in the euro. They know that the value of the EURO will go up starting at some point, probably next year and they load up on the cheap price and are selling the USD which is now at a high price.
We cant trade that way because we dont have the assets to trade that way but I like watching the big boys and when they start buying you know 6 months, a year down the road the currency will move back up. The old adage of buy low and sell high is fundamental to trading. My questions is this, how many people were buying stocks in 2008? Were you? That was the time to buy.
