It would appear that the European Community $1 trillion dollar bailout package is not going to help the Euro. The downward direction of the Euro was briefly halted when last week’s the bailout promised to help the PIIGS and Forex situation. However, the price for guaranteeing the debts of Portugal, Italy, Ireland, Greece, and Spain will be that the value of the common currency will suffer. National debt has a way of doing that. Although the Euro briefly flirted with $1.30 last week with the bailout announcement it is back down to $1.27. Many are betting that the downward direction of the Euro will not stop until the Euro settles in at the level it began in 1999, less than $1.20.
Although a strong currency is a measure of the economic health of an economy it is also an impediment to exporting that economy’s products. This is why Japan and then Taiwan and then China have traditionally purchased dollars. The dollar is, in fact, a good place to hold wealth. However, these countries have tried to hold the dollar up in value to make their products more competitive in the North American market place. Now, with a slide in the Euro, the Common Market’s exports will be cheaper and more competitive. That fact could be the salvation of the weaker economies on the continent if they are able to bring in foreign exchange and boost employment. In Forex trading the Euro it may be wise to expect a continued slide to less than $1.20. On the other hand, if the continent becomes more competitive again, one might just see the common market currency start to rise again in the next year or so.
Good Forex advice is to watch the markets and trust them more than any “expert” advice. If everyone knew where the Euro is heading there would be no need for a foreign exchange market. Even though the fundamentals of European debt suggest a continued slide of the Euro the smart trader will rely upon technical analysis of the Forex market in order to buy or sell Euros. Although the temptation for American traders may be to trade the EUR/USD pair it is not necessary. Trading EUR/JPY or EUR/GBP may be more profitable depending upon how the Japanese or British economies do coming out of the recession.
As always success in Forex means a plan and a method. This includes trading the apparent, continued downward direction of the Euro. Whichever currency pair one trades it is essential to be familiar with the economics, politics, and monetary policy of that nation. Then the trader can work on comparisons in understanding the fundamentals of the relationship. Meanwhile the trader must stay current on pricing and price patterns. Because price patterns repeat themselves is why technical trading works. Being current with current price patterns and knowledgeable about how to trade them will help the trader in dealing with the downward direction of the Euro.
More Resources
- Ken Rogoff Says ECB’s $1T Bailout Package Just a ‘Fig Leaf’
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