Euro takes a dive

 
This year’s trades so far have been focussed on shorting the Australian Dollar and Euro.  This should change from this week onward with more markets coming into play and more trades, all being well.
 
It seems 2010 may make a really good traders year, I feel this because of the underlying debt situation for many western governments whereby they must balance the issuing of new government bonds with the relative value of their own currencies. 
 
This will cause great shifts in forex markets as the perceptions of relative market change.  So far, the US Dollar has been the main beneficiary of the Euro ‘wobble’ and has enabled it to close over the key 80.00 level, mentioned the other week – and its worth bearing in mind that this rally has nothing much to do with the intrinsic strength of the US economy.
 
This year, the Euro will face its sternest test yet and if it survives intact, with all members states onboard, it will gain a greater degree of credibility as an alternative to the US Dollar. 
 
In the near term though, the fate of the economies of Greece, Portugal and importantly, Spain will be the deciding factor.  Historically these countries would devalue their own currencies, make exports more affordable for buyers and so stimulate domestic demand.  These days, this is not an option  – as they are tied in to the Euro – and so the impact is felt even more strongly by the population, especially the Public sector who have to suffer painful real cuts in wages in an environment where things like fuel prices continue to rise.
 
The UK has been insulated to some extent so far with the Sterling devaluation efforts of 2009, but with the election around the corner, uncertainty will be on the rise, which is not going to be a good thing for the UK’s credit rating coming into the Summer.  This is another factor that could spur on any US Dollar rally and so create many more short selling opportunities in the STPro portfolio.

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