Euro hits 10 month low against the Dollar

The Euro has hit a 10-month low against the US dollar…. below $1.3300.

Markets are still jittery after Portugal’s debt was downgraded yesterday and with Euro leaders due to discuss a bail out for debt-stricken Greece.

The course of action is still undecided- Germany now wants the IMF to play a role (interestingly following Gordon Brown´s earlier line). The fact that Fitch Ratings downgraded Portugal’s sovereign debt yesterday did nothing to allay the fears over the stability of the currency. The bears are out!

The euro tanked below $1.33 on various trading platforms, its most southerly position since May 2009. It has recovered somewhat over the morning, as day traders cashed in their profits.

And the Chinese government is also stirring things up a bit, following a couple of days of Google bashing (after they decided to lift the censorship on Google.cn, or rather redirect it to Hong Kong along with those sandstorms from Beijing).
Chinese central bank deputy governor Zhu Min said the Greek debt crisis was just the start. ("Ouch"). But then, he does hold rather alot of dollars…..

The Euro was also down against the Swiss franc to the dismay of chocolate and watch makers. It hit a record low of 1.4230 francs yesterday.

EVERYONE LOVES UNCLE SAM.

Well not everyone, but the forex markets seem to be heading that way.The dollar index, which is a measure of the greenback’s performance against a basket of 6 other currencies, rose to 82.062, a 10-month peak.

Although the dollar lost traction by 0.2 % against the Japanese currency to 91.95 yen JPY, generally the direction is up.

Weekly Forex Markets Review

Euro Slips on Greece

Just when everyone believed a Euro bailout for Greece was a done deal the market was surprised by the German´s apparent U turn. The German government appear to have decided that planned aid for Greece was illegal and have stated the IMF should be involved financially not just in an advisory capacity.
What seems to have spooked the market more is the lack of unity and clarity. In the other camp from Germany are France the ECB and EC president Barroso, who has called for immediate help to be announced.

This weeks EU summit in Brussels has taken on more importance and the Greek PM Papandreou has set this as a deadline for leaders to complete some aid package.
One suspects the Germans are rightly concerned of setting some dangerous precedents which other indebted EU members may well follow in the months or years ahead.

The upshot was the Euro weakening almost 2 per cent against all but Sterling and having touched 1.3800 early in the week finished at 1.3525. For the time being The EUR/ USD has moved back to the lower end of the recent range. It remains to be seen if there is potential to push below the large resistance just above 1.3400 at this stage. Equity markets have continued to behave themselves but seem to lack much to push them on further at this stage.

Sterling which benefited early in the week from better than expected employment data, ( almost reaching 1.54 USD) eventually succumbed to the price action of the Euro finishing the week at USD 1.5015.

The Euro/US dollar has now been trading in a 3 per cent range since the beginning of February and should that break it will no doubt increase volatility.

GBP then EURO rallies come to an abrupt end

Just as the Pound and Euro were fighting back came a mass of bad news to end the brief rallies.
First Sterling which was sold off on BOE Governor King’s dovish comments. Then The German IFO business climate figures and French retail sales which were very disappointing(Weather and the end of car scrappage schemes were blamed).
Just to add to the misery and aid the dollar and Yen even more was the announcement  of US conference board  Consumer Confidence figures, which fell to a 10 month low of 46 against 55 expected.
This led equity markets lower compounding the the Yen and dollar rise.

So where to next?
Well frankly it is difficult to see much to help out the Euro other than it being oversold. There seems to be a real danger of European  countries slipping back into that talked about double dip recession. The difference this time will be that governments are unable to pump more cash in this time. On the contrary many will be having to do the opposite.

I am perfectly prepared to be wrong but a  sell off in equities and  at some point a blood bath in the Bond markets ( triggered by Government debt)  looks to be looming.
Now the US and Japanese have their own problems but the initial moves for both their currencies could be much  stronger.
If this pans out then Gary Shilling´s prediction of parity for Euro Dollar does not look that far fetched
Just to add to the mix the Forex Market hero George Soros believes that the Greek problem is the least of the debt worries for the Euro zone .

If there is any Euro rally on the back of some sort of Greek bail out ,or short term consolidation, it could well be a  precursor to another big down move for Euro dollar.

Playing the short term rally certainly ended in tears today.

Is this the beginning of the end for Euro zone.

The week was dominated by Greece and although off the lows the market voted with their feet as far as the Euro was concerned.
Interestingly there are some very distinguished economic commentators predicting the demise of the Euro zone. Their argument is pretty compelling to anyone who has always had their doubts about the Euro zone believing as I do that it is fundamentally floored.
The authorities are papering over the cracks and it appears that while they may buy some time the likelihood of Greece and others ( Portugal Spain and Ireland) being able to make creditable reductions in budget deficits over the coming years looks remote.
The real. truth is they should never have joined and in the case of the Greeks they should not have been allowed to.
Against a background of what looks likely to be pretty benign growth in Europe will these countries be prepared to embark on a long period of austerity.
Bailing out the banks was one thing but Sovereign problems is another ball game. Investors are right to be concerned .
As far as the currency market goes next week will probably be wait and see. While Euro dollar may test the low 1.34 level there could well be more consolidation ,as the market digests the information coming from the finance ministers meeting.
Much has been written about the excessive short Euro dollar position held by the IMM IInternational Money Market)- equivalent 5 Billion GBP.While this may spell warnings of a correction it will be of little consequence if there is a major reallocation of assets away from the Euro If the the big movers and shakers get their teeth into this then frankly we aint seen nothing yet.While any argument for a major move into dollars and to a degree Yen is not very compelling at all ,they may win by default.
The possibility of German and French tax payers footing any bailout bill may be tempting for the generation of politicians that have committed to the Euro but would cause rebellion from the public. Indeed a television poll in Germany showed 71% of German voters are against providing financial help for Greece and political pressure would likely refrain German prime minister Merkel from taking any further steps.

The lack of any real concrete measures this week showed that there is no consensus and certainly those outside the Euro zone but within the EEC will give a thumbs down to any financial assistance from their taxpayers.
Of course whatever is cobbled together may buy some time but that will be all.The jury will be out for some time ,however,this is looking more and more like the beginnings of a major sovereign debt crisis.