-- Posted Monday, 24 September 2007 | Digg This Article

Your independent Swiss asset manager                     

THE TIMELESS PRECIOUS METAL FUND

THE SIERRA MADRE GOLD & SILVER VENTURE CAPITAL FUND        

Follow-up No. 6 / September 25, 2007

The fifteen-year picture

The euro is the official currency of the Eurozone (also known as the Euro Area or the Euro Land), which consists of 13 European states (Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Slovenia, and Spain) and will extend to include Cyprus and Malta from 1 January 2008.

It is the single currency for more than 320 million Europeans. Including areas using currencies pegged to the euro, the euro directly affects more than 480 million people worldwide. With more than €610 billion in circulation as of December 2006 (equivalent to US$802 billion at the exchange rates at the time), the euro surpasses the U.S. dollar in terms of combined value of cash in circulation.

The long-term trend in above chart is nicely depicted with the EMA(50) (green line) and reveals that such trends often last several years. Within this long-term trend, counter movements take place which can last one year or longer. Such counter movements occurred in 1998 within the general down-trend and again in 2005 within the general up-trend.

It would evidently be very profitable to be in a position to accurately guess beforehand when such counter movements or even a trend-reversal are likely to set in. We can determine, examining above graph, that once price start to move away in excess of 20% from the EMA, such a counter movement and/or trend-reversal becomes an increasing probability. 

The medium-term picture

While a completed Head-and-Shoulder formation tells you explicitly that a trend reversal has occurred, it is of little use if you wish to get out at the top of such a reversal. During the 2002-2005 Euro-bull-market you would have been well-advised if you had sold each time prices moved to a level approaching 10% above the EMA (50).

The up-ward movement, which resumed in 2006 after the Euro corrected 16%, tells now a different story as the trading channel has become narrower. Those e.g. who sold in 2003 (see green circle in above graph) would have missed out on a substantial move of 11%.

At this stage, we would not take profit simply because the Euro has moved up 5% within this up-trend. As there are no signs of any trend-reversal or excessive trading levels yet, we would conjecture that more dollar weakness is probably unavoidable.

The short-term picture

Those who have bought EUR against the USD should keep their positions until we have clear indications of too much enthusiasm. Our target range for such circumstances is 148 to 150 for the coming months.

Day-traders obviously have another prospect. We, for our part, prefer to guess the medium-term trends. 

Our recommendations were valid at the time of writing, viz. at

and may no longer be relevant at the time of reading.

Peter Zihlmann

www.pzim.com  

www.timeless-gold.com

invest@pzim.com

Tel       +41 44 268 51 10

Mobile +41 79 379 51 57

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Disclaimer:  P. ZIHLMANN INVESTMENT MANAGEMENT AG does not accept any liability for any loss or damage whatsoever, that may directly or indirectly result from any advice, opinion, information, representation or omission, whether negligent or otherwise, contained in the trading recommendations or in any accompanying chart analyses, whether communicated by word, or message, typed or spoken by any of its employees.

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-- Posted Monday, 24 September 2007 | Digg This Article

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