forex trading outlook today - Euro Eyes Crisis but Holidays and Desperation May Fend off Collapse : Euro Eyes Crisis but Holidays and Desperation May Fend off Collapse : The euro is facing very serious threats to its health – troubles that could very well necessitate a change to how the currency is derived or traded. In reality, these troubles have been around for some time (hence our covering them for so long). What is causing conditions to seriously deteriorate now is a combination of: limits to policy officials’ ability to fight sentiment; rising fiscal and financial regulations in the Euro Zone; decay in not only Europe’s economy but also in global growth levels; and a deepening crisis of confidence and liquidity the world over. This is a deadly mix – a composition much like what was faced back in 2008. However, before markets and currencies collapse under their own weight; there are periods of stops and starts as policy officials try their hand at preventing disaster. We are currently in this turbulent lead-up; and that makes trading the euro particularly difficult.
If we were to simply fast forward a year, it is highly likely that we would be looking back on a global financial and credit crunch that has ransacked the world’s markets. Given European officials’ strategy through 2010 and 2011 (whether intended or not) has been to buy time in the hope that broader market confidence would recovery and thereby absorb the exposure they have taken to promote stability; a leveraged crisis event would essentially have forced them to capitulate. That means Greece would almost certainly have exited the Euro Zone, European banks would have required massive injections of capital and a structural change to the region’s financial structure would have been required as debt obligations would have prevented economic recoveries – leading to a vicious and ongoing cycle.
Doing the macro-math, this seems the most likely scenario over a longer period. Yet, trading that outcome isn’t so straightforward. The first complication is that there is a greater propensity for intervention – moves that temporarily prop up confidence but then ultimately fail. Another issue is the change in market dynamics such regulations, permanent changes to investor habits and a general trouble identifying what assets are safe havens. For those with patience, high risk tolerance and low leverage; a short euro would pay off over time. For the rest of us; we need to keep the general trend in mind and move onto the intermediate catalysts.
Over the past week, conditions have deteriorated to the point that the region once again finds itself on the threshold of a devastating collapse in funding and asset values for the region. Already well under water, we find agreement to take out all the stops for Greece is once again being second guessed. The EU’s sovereign stability is under pressure again as the ECB is desperately buying Italian and Spanish bonds to prevent the EU members from having to ask for a bailout (something that simply could not be supported given their respective sizes and the limitations of the EFSF and ESM). And, something that creates exponentially greater problems, the market-level liquidity well is running dry.
Given this collection of immediate issues; it is increasingly likely that we see a larger European rescue effort that doesn’t have the half-agreement complications or perhaps a coordinated action between the EU, US and other global leaders. The former will have a shorter half life as the market has built up a resilient skepticism and the costs have grown exponentially greater. The latter effort would likely last longer. In both instances, we would likely buy time for a short-term boost for the euro (depending on how broader risk trends were fairing). In the meantime, we may very well find a natural stabilizer in the absence of a large swatch of speculative liquidity with the US Thanksgiving holiday. That said, we should not be complacent and rely on supranatural intervention for market revival.
If we were to simply fast forward a year, it is highly likely that we would be looking back on a global financial and credit crunch that has ransacked the world’s markets. Given European officials’ strategy through 2010 and 2011 (whether intended or not) has been to buy time in the hope that broader market confidence would recovery and thereby absorb the exposure they have taken to promote stability; a leveraged crisis event would essentially have forced them to capitulate. That means Greece would almost certainly have exited the Euro Zone, European banks would have required massive injections of capital and a structural change to the region’s financial structure would have been required as debt obligations would have prevented economic recoveries – leading to a vicious and ongoing cycle.
Doing the macro-math, this seems the most likely scenario over a longer period. Yet, trading that outcome isn’t so straightforward. The first complication is that there is a greater propensity for intervention – moves that temporarily prop up confidence but then ultimately fail. Another issue is the change in market dynamics such regulations, permanent changes to investor habits and a general trouble identifying what assets are safe havens. For those with patience, high risk tolerance and low leverage; a short euro would pay off over time. For the rest of us; we need to keep the general trend in mind and move onto the intermediate catalysts.
Over the past week, conditions have deteriorated to the point that the region once again finds itself on the threshold of a devastating collapse in funding and asset values for the region. Already well under water, we find agreement to take out all the stops for Greece is once again being second guessed. The EU’s sovereign stability is under pressure again as the ECB is desperately buying Italian and Spanish bonds to prevent the EU members from having to ask for a bailout (something that simply could not be supported given their respective sizes and the limitations of the EFSF and ESM). And, something that creates exponentially greater problems, the market-level liquidity well is running dry.
Given this collection of immediate issues; it is increasingly likely that we see a larger European rescue effort that doesn’t have the half-agreement complications or perhaps a coordinated action between the EU, US and other global leaders. The former will have a shorter half life as the market has built up a resilient skepticism and the costs have grown exponentially greater. The latter effort would likely last longer. In both instances, we would likely buy time for a short-term boost for the euro (depending on how broader risk trends were fairing). In the meantime, we may very well find a natural stabilizer in the absence of a large swatch of speculative liquidity with the US Thanksgiving holiday. That said, we should not be complacent and rely on supranatural intervention for market revival.
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