Forex Investing Blog

Article Summary:

Article Content:
Yesterday’s painful selling looks to continue at this point as it is highly unlikely that investors want to go into the weekend long risk as the Euro debt crisis still looms heavily over the global marketplace.  Greece has been having trouble coming up with the austerity required to receive the additional bailout funds (not surprising) and rumors are that the Finance Minister may be losing the political will to follow through with the cuts.

This presents an obvious problem, as the outcome is uncertain as to what it might do to the EMU in general.  Fears of contagion to the other countries, most notably Italy could take down the shared currency.  So far there has been no credible progress toward a solution and longer the can gets kicked down the road, the closer to the end it goes. 

Well folks, we are nearing the end of the road.  And the markets have been appropriately reflecting the risk inherent in these problems.  Excessive debt is ruining Western countries and with out the will to halt the spending, we will go bust sooner than later.

I can’t see a scenario right now that is Euro positive, even if they solve this crisis.  Any “solution” must involve either debt forgiveness or a major expansion of money supply, both of which are negative for the Euro.  A Greek default is also negative, so I’m not certain what is keeping the Euro at these levels except for the fact that the long-term outlook for the US dollar is negative. 

But not to worry, the G-20 has come to the rescue!  They issued a statement that they are “committed to a strong and coordinated international response to address the renewed challenges facing the global economy.”  That was good for a bounce that lasted a few hours, before the selling resumed.  Ineffective as usual.

The Pound is actually faring a bit better than the rest as mortgage approvals came in better than expected.  While the economy in the UK is not great, they are not facing the type of headwinds that the Euro zone is and their early response to deficit reduction may position them better than the rest. 

The Japanese yen has been strengthening on risk aversion, making new highs vs. Euro and Pound and coming perilously close to the 76 level vs. USD that inspired earlier BOJ intervention.  While the talk of intervention has picked up recently, the potential financial tsunami that a collapsing Euro might be could be ample reason to step aside for now until more certainty emerges.

Other than that, there’s not a whole lot going on today from a data release perspective. Markets are bouncing off of their morning lows and it’s possible that short-covering could halt the aggressive selling we’ve seen over the last 3 days.  However, I don’t expect a lot of outright long positions to be established today, as Euro zone risk is too great to fully commit at this time.

Both gold and oil are lower on the declining global economic picture and the declining values are good for the economy in my opinion, contrary to what others might think.  The free money faucet provided by the US Fed as artificially pumped up prices which has contributed to inflation.  With unemployment still stubbornly above 9%, higher costs act as an additional tax on the public which further weakens demand.

Politicians both here in the US and in Europe needs to get off their butts and put their ideologies aside to come up with responsible plans to fix the global economy.  The days of kicking the can down the road are over, as there is not much road left.

 

 

 

———————