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More Problems for the Euro!
By Mike Conlon | December 11, 2009
I wrote earlier in the week in an article titled, Euro Dead Zone, that there is some potentially trouble brewing in the Euro. Part of this is due to structure of that currency, in that it is comprised of different economies at different levels of strength.
Typically, the stronger economies “balance out” the weaker ones, and as I mentioned there are starting to be a lot more weaker than strong. One of the “solutions” that I pointed out is that the ECB might consider a lowering rates to make it more affordable for the weaker countries to gain access to capital. It doesn’t appear that there is going to be inflation there anytime soon.
But today there is another solution being reported on Bloomberg: that perhaps the weak countries, most notably Ireland and Greece, would pull out of the European Monetary Union (EMU). Or they can pray that the IMF will bail them out.
This presents a problem that is two-fold: 1) I can’t imagine that these countries would leave the EMU voluntarily, which would mean that they have become “persona non grata”, namely not welcome or forced out; which would 2) undermine confidence in the Euro as a currency.
And today we are seeing this on the charts. Let’s look at a 4-hour chart of EUR/USD: (click chart to enlarge)
Now while part of this move can be attributed to US dollar strength, I can’t help but think that the Euro is inherently weak due to the competing interests of its members. If they expel the “weak” members every time there is a problem, the Euro is quickly going to turn back into the Deutschmark! As of this writing, EUR/USD is down .68%.
To follow this situation real-time with a free, practice trading account, click here!
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