'Twas the Night Before Stress Tests, Nary a Euro Bull in the House

I'm attending Agora Financial's excellent 11th Annual Investment Symposium in Vancouver, Canada this week.

Here you can find a fairly wide range of investment ideas and outlooks. From Doug Casey's call that we're in the midst of the "Greater Depression" and all developed country sovereigns will go bust soon, to John Mauldin's suggestion that the 10-Year Treasury may continue to rally driving the yield to perhaps as low as 1.5% next year.

But one thing I have yet to encounter is someone who is bullish on the Euro.

Two conference presenters making the bearish Euro argument are the aforementioned John Mauldin and Rob Parenteau. Both are forecasting Euro-U.S. Dollar parity or lower next year, with Mr. Parenteau suggesting it may come as soon as this August or September. (In December 2009 Rob correctly predicted Greek social unrest in 2010, which unfortunately came true in the form of violent and deadly spring street clashes.)

European bank stress tests are set to be released tomorrow. Like U.S. bank tests last year there have been advance leaks about which banks are set to pass and fail. However, the European bank stress tests are a "black box" because the criteria to "pass" is unknown. This in turn has created a perception that the tests will do more harm than good.

Fundamental to the bearish outlook for the Euro is the belief that a Greek debt "restructuring" (aka default) is inevitable. A Greek default, an implosion of Spain's cajas, or a Hungary/IMF meltdown -- to cite just a handful of possible triggers -- could lead to a chain reaction banking crisis given the web of cross-border debt.

And while recent economic numbers from Europe, such as PMI and German exports, have been positive these figures will come under further pressure in the second half of 2010 as pan-European fiscal austerity measures gain traction.

After the Euro crashed in June to approximately 1.18 vs. the U.S. Dollar, it has rallied sharply. However, it has met resistance at the 1.30 level and failed to surpass its 25 week moving average. While many Euro shorts were squeezed out by the recent up move, the talk at the conference suggests that it is time to put this trade back on.

If you're interested in learning more about the conference including daily updates click here.