The Euro peaked in 2008 at $1.60 versus the dollar and now the USD/EURO currency pair trades around $1.36 with the possibility still looming of a PIGGS (Portugal, Ireland, Italy, Greece, Spain) debt default. The seemingly endless slide of the dollar has now been joined by another world currency. In looking at Forex and sovereign debt it reminds one of the old story about running from the bear. It is not so important to come in first as not to come in last.
In developing a Forex trading strategy it is wise to remember that Forex trading is often a matter of comparisons. The damage of the recession is worldwide but some nations are in more trouble than others. Some currencies will come out of the recession stronger and some will come out weaker and there will be a lot of volatility to trade in the meantime. Currently the question is if Germany and other fairly solvent nations of the European Community will guarantee loans for the PIIGS and what sort of deals that might entail. Understanding the Forex markets requires looking at a lot of two way relationships between currency pairs as well as looking at the internal politics with a nation or nations using a single currency.
Leadership within an economic community is based on political factors, sharing of markets, and the development of understandings about preserving jobs throughout. A country such as Germany has to give away a fair amount of political clout in order to gain easier access to markets throughout the expanding European community. Now they are going to have to bail out other members who, apparently, played fast and loose with budget projections and got caught. Looking at the long term it may be safe to assume that Germany, France, and others asked to bail out their fellows may assume a stronger role in the EU. How such a stronger role might affect trade with Russia, technology transfers, more natural gas out of the Ukraine, and more. For the Forex trader this is all part of Forex strategy and the Forex news.
Looking at the USD/EURO currency pair many traders are predicting a rebound of the EURO as solvency issues are addressed. Others are openly saying that this debt issue is just the start of a slide that will bring the EURO back on par with the dollar. For the Forex trader interested in intraday trading, a long term readjustment of the USD/EURO relationship is not so important as the movements of the market that the news occasions. Good Forex advice may not be so much to bet on the EURO or the Dollar but to watch intraday movements and scalp profits on each swing of the currency pair.
As time goes on there will likely be more factors influencing the EURO /USD pair but for the time being the possibility of debt default is center stage. As both economic zones deal with debt and recession recovery the relative values of the currency pair will have to do with which does a better job, not with which comes in first in the world. Sometimes just staying out of default (and out running the bear) is what is the most important.