Dollar Down… So Why is the Euro Falling Too?

Yesterday’s stock rally pushed the dollar index down half a point, to 80 even. The Treasury’s announcement of the biggest budget deficit in the history of fiat money didn’t help the greenback, either.

That puts the pound up a few cents from last week’s low, to $1.63. The Canadian dollar has gotten a nice bump too, from 86 cents Friday to just under 88 cents as we write. At 92, the yen is holding on to its newfound strength.

But in spite of the dollar’s marginal weakness, the euro is no better off. In fact, since peaking around $1.43 in early June, the multination currency has been slowly trending down. This morning, it’s at $1.39.

“Remember that currencies, because they are fiat by nature, are political things,” our currency trader Bill Jenkins reminds us. “While it is the fundamentals that drive them, one of the overarching problems in our market is the absence of reliable fundamental data. It is hard to debate against the fact that governments manipulate what is released.

“But some things are for sure and provide ‘reasonable markers’ to see what a currency is doing. One of my ‘favorites,’ although I hate to call it that, is the ‘civil unrest factor.’

“Across the eurozone, riots and outbreaks of violence have been touched off by escalating economic problems and disagreements between members and neighbors. People involved in civil unrest are a multifold problem. First, they have too much time on their hands because they are not working. Jobless citizens, especially in a heavily socialist culture, are a continual drag on the system.

“Second, it costs money to keep repressing social upheaval — presenting another drag on the system. Additionally, the passions and fears of men being what they are, such activities tend to draw in more normally productive folks as the snowball gains speed and volume.

“Here in the United States, we are not facing such difficulties (yet). This means a more reasonable system of work and distribution of goods and labor. All in all, this is good for a culture, the body politic and the economy. As a result, it also breeds greater confidence in the currency. And when all is said and done, investment money will go where there is a reasonable likelihood of return, even if the return may be lower.

“Longer term, I have to wonder if the euro has what it takes to survive this crisis. I have no doubt that the United States will emerge out the other side with all 50 states still members of the union. I don’t know that such can be said for the European Union.”

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Case in point: When American auto supplies got in trouble, their workers picketed. When the same goes down in France, they rig the place with bombs and set a bonfire!

French Bonfire
That’s the scene at bankrupt car parts factory New Fabris in Chatellerault. Former workers have rigged the factory with gas canisters and promise to detonate unless the company’s two biggest clients — Renault and Peugeot — pay them off. By their judgment, the automakers got state assistance while they were left to rot. Thus the laid-off employees want 30,000 euro a piece… heh, evidently a payoff worth imminent imprisonment.

The Daily Reckoning