NEW YORK (Reuters) - The euro is likely to bottom out against the U.S. dollar within two weeks, based on strong near-term technical indicators, longtime market analyst Robert Prechter said on Monday.
He was speaking at the Reuters Investment Outlook Summit in New York.
For stocks, Prechter said he was “quite convinced that we have resumed a bear market.” He also said municipal and corporate bonds may be the next assets to suffer severe declines.
Prechter is known for forecasting a big bull market in stocks in 1982 and for getting out before the 1987 market crash. He continues to expect U.S. stocks will fall below the March 2009 low of about 666 points on the S&P 500 index .SPX, he told Reuters Insider on Monday.
The euro fell below $1.19 against the dollar for the first time in more than four years on Monday on investors’ growing concern about the European sovereign debt crisis.
But recent readings of market psychology show about 98 percent bearishness on the euro and 98 percent bullishness on the dollar, signaling a turnaround is likely soon, Prechter said.
The euro could gain about 10 percent against the U.S. dollar over the next two-to-three months, he said.
“We’re getting very close to the peak of the first major move up in the dollar (and are) probably within a week or two of the end of the decline of the euro against dollar,” he said.
Prechter said, however, he remained bullish about the U.S. dollar’s prospects over the long term.
Prechter continues to favor cash and Treasury bills as safe havens against a U.S. deflationary depression, which he believes is slowly taking hold, he said.
Prechter, the president of research company Elliott Wave International in Gainesville, Georgia, is also known for his 2002 book “Conquer the Crash”, which warned about the huge credit bubble that burst a few years later.
Even after U.S. corporate bond yield spreads over Treasuries reached extremes at the height of markets’ panic in December 2008, non-government bonds are likely to see a second phase of selling, he warned on Monday.
U.S. junk bond spreads have widened about 150 basis points since late April to about 700 basis points over Treasuries.
“We’re in a period of widening spreads between high-grade and very low-grade debt,” he said. This long term trend could last for two or three years, as fears grow whether some issuers can repay bondholder principal, he said.
Municipal bond prices could fall steeply in coming years, Prechter also forecast. Even though municipal bonds rarely default, the unfolding depression may be a once-in-a-century event that puts some munis at serious risk of defaulting, he said.
“The public has decided the safest pace to be is municipals as well as corporates. I think that’s the next area of severe decline ... the area you want most to avoid,” he said.
Additional reporting by Dena Aubin and Dan Burns; Editing by Padraic Cassidy
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