Economists warned that Germany is heading for recession after the Ifo institute’s closely-watched survey of the business climate in Germany dropped in September for the fifth month running.

“The companies surveyed are again less satisfied with their current business situation. They also expressed greater pessimism about the future,” said Ifo president Hans-Werner Sinn on Monday.

That helped push the euro to $US1.2928, down from $US1.2985 late Friday.

Both currencies dropped against the Japanese yen: The dollar fell to 77.83 yen from 78.12 yen, while the euro slipped to 100.63 yen from 101.42 yen.

The US dollar picked up strength against the Swiss franc, rising to 0.9357 francs from 0.9324 francs.

The British pound eased to $US1.6217 from $US1.6229.

Gold and silver prices pulled back from their six-month highs Monday as the dollar found support at its 10-month low.

Spot gold prices fell 0.62% to $1,763 an ounce. It’s risen four months in a row, gaining 8.25% this month. Profit-taking after a five-week winning run is in order.

Central banks have gone pedal to the medal on monetary easing and aggressively eased monetary policy.

Traditionally, monetary easing is negative for a country’s currency but with all 3 central banks moving at the same time, investors are wondering which currency will be the biggest loser and which central bank will win the race to debase.

We think it will be U.S. dollar because the ECB’s program can’t be implemented until country formally requests for aid and the BoJ’s program is limited by size and timing.

The Federal Reserve on the other hand expanded their asset purchase program immediately this month.

So even though both central banks pledged to buy more bonds, the Fed is the only one of the two that has put money on table and this is why in the long run, we expect the dollar to underperform the euro. Also, at the end of the day, these initiatives by central banks will reduce default risk and overall risk premium.

Since investors are still net short EUR/USD, the decline in risk should lead to more short covering in the EUR/USD.

Shayne Heffernan

Shayne Heffernan oversees the management of funds for institutions and high net worth individuals.

Shayne Heffernan holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reached a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.Read the Terms of Service

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