Tuesday, June 21, 2005

Warren Buffett Bankruptcy Watch

The Euro actually closed up slightly, but I still found this an interesting followup to this story.

This did not stop the euro falling 0.9 per cent to Y131.70 against the yen and 0.2 per cent to £0.6640 against sterling, although the shared currency did recover from intra-day lows to sit just 0.1 per cent lighter at $1.2137 against the US dollar.

Paul Chertkow, head of global currency research at Bank of Tokyo-Mitsubishi, said a fresh impetus was needed to re-test the downside of the euro’s recent range, at $1.2020.
However, Mr Chertkow believes there are around $1bn worth of options in place below the $1.20 level, which could cause the euro to slide precipitously if triggered. “We would have real panic,” he says.

In this eventuality Mr Chertkow sees scope for the euro to fall as far as $1.10, or potentially, even parity against the dollar, led by euro-selling by US companies. “American corporates have insufficient hedging ratios to protect a move on the downside through $1.20,” he said. “This would cause American corporates to capitulate.”

Goldman Sachs also unveiled a gloomy prognosis for the euro yesterday. Thomas Stolper, global markets economist, calculated that repatriation flows under the US Homeland Investment Act had thus far been worth around $30bn-40bn and accounted for a 3 cent drop in the euro. Mr Stolper saw similar flows still to come, implying 3c more of euro weakness.