© Douglas Borthwick
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In my opinion, weather is an excuse and this GDP number indicates that there is a severe slowing in the US economy. My personal view is that this is not a one up incident, but it is really where the economy is trading right now. I personally expect that the second quarter could also come up with a negative number and we could actually be entering into recession.
According to some economists, this downward blip sets the U.S. up for strong growth in the current quarter covering April to June. What is your opinion to that?
Six months ago, in December, economists estimated that GDP for the Q1 would be 2.8% and we came up with a -1%. If you would ask economists a year ago, where would the 10-year yield would be, they would have said 3.5% and it is 2.5% at the current moment. I believe that there is sort of a huge content consensus trade, where everyone wants to be a part of the consensus, but the reality is that if you go with the opposite of it – you will actually do quite well these days.
Thus, this mentioned statement is rather irrelevant, because they have been proven time and time again to be wrong. A great example would be when one bank announced that there is a 75% chance that Greece would exit the Euro, others said that the Euro was going to trade to parity last year, and 90% of all the economists agreed on it, however, it has not happened. In my opinion, the consensus view is irrelevant.
What will be the major headwinds for the U.S. Dollar during the 2014?
I believe that the US is facing an impending slowdown. In my opinion, as you seen QE tapering continuing, it takes easy money out of the US economy, consequently, it is certain that this fog has been over the economy's lifting, and will be left with the economic reality of what has been in the USA.
A great example with the durable goods orders, that came out last week and they were positive, but the only reason behind this is due to the fact that US had a huge defense order go through for ten submarines. Without the mentioned, the durable goods number would have been negative by a large amount and that would impact on the Q2 GDP number in the US. Thus, I think that the greenback has probably priced in a lot of growth, but to my mind the reality is that we are going to have a lot of weakness.
What are your forecasts for the EUR/USD currency pair for the end of Q2 and 2014?
For the end of the second quarter, we expect the EUR/USD to trade at 1.40, which would be 3.5 big figure move higher. If we are entering a cycle, like we had in 2007 (we should be entering the recessional cycle) then we could easily witness 1.50 for the end of 2014.