DE EURO ? NAAR BENEDEN…

22 maart, 2010 | door MHAAGEN |

Volgens Moneyandmarkets is het nog niet te laat om uw euro’s om te wisselen voor dollars.  Ik ben het hier helemaal mee eens – en u ? Laat het ons weten aub…

Next Leg for the Euro: Down

by Bryan Rich   

There are two major issues facing global currencies in the months ahead. And both have escalated in the past week.

Issue #1: The Greek Drama

Act I:

Sovereign debt fears

In the first act of the euro-zone sovereign debt shock, shaky Greek government finances exposed the structural flaws of the euro. And as the lens of scrutiny widened, the potential domino effect of weak euro-zone countries combined to represent a viable threat to the future existence of the euro.

I called attention to this vulnerability back in early January in my piece, Will the Euro Become the Most Hated Currency for 2010? Since then, the euro plunged another 6 percent against the dollar and the outlook has grown increasingly tenuous.

Intermission:

Bail out?

But in came talks of a bail out. And that marked a timeout for the massive speculative selling pressure against the euro. Euro-zone leaders gathered and emerged with a promise of support for its flagging member country, Greece. But the implications of such a decision would bring with it an irreparable moral hazard. If Greece could be bailed out, that opens the floodgates for the other weak countries in the euro zone to come looking for support from their more fiscally responsible neighbors.

Now, with increasing signs that no concrete form of financial aid will be offered to Greece, the sovereign debt problems weighing on the euro currency are approaching Act II.

Act II:

The realization of a no-win situation for the euro …

A bail out of a fellow Economic and Monetary Union (EMU) member country is a direct violation of rules set forth in the Stability and Growth Pact, the principles upon which the euro was built. And that’s why euro-zone leadership has been slow to provide details of their proposed support.

But this past week, Greek Prime Minister Papandreou turned up the heat. He asked for a definitive decision on aid from Europe to come by next week. His bargaining chip: IFM aid. If the euro zone is not prepared to step in with financial aid, he’ll turn to the IMF. And a turn to the IMF represents a further credibility hit for the European monetary union … i.e. the structure of the euro is flawed, its rules are unenforceable and solidarity isn’t possible.

And with an official deadline for speculators to lean on, this coming week could bring with it the catalyst for the next big leg down in the euro.

Take a look at this chart …

Source: Bloomberg

The euro had a false break from the four-month bear channel, but now is on track to test the lower line of this channel, which projects a test of the 2009 lows of 1.2457 by the end of April. Coincidentally, Greece will have to come up with 14 billion dollars in fresh capital to refinance maturing government debt by that time.

And as I laid out in my February 20th Money and Markets column, The Future of the Euro in Question, expect the intense scrutiny surrounding the lifespan of the euro to continue.

The EMU countries with damaged balance sheets and a bleak outlook for growth are stuck. With a one-size fits all monetary policy and currency, they lack critical tools to work their way out.