FX FUNDAMENTAL ANALYSIS
the turning point as Trichet’s calm demeanor was a soothing point for traders as he always knew what to say and more importantly what not to say when it came to questions dealing with the current crisis. Trichet made it clear during the last conference that there remains a full arsenal of tools that Draghi will be able to implement if needed as the ECB President. What’s even more important is the timing as the situation within the EuroZone has become more unstable. If Draghi isn’t able to bring c o n fi d e n c e back into the marke tp la c e during
a history time
when Greece faces it’s most decisive moment in
as
it tries to secure its October bailout payment, the euro’s fall may accelerate.
GERMAN COURT RULING
Te recent German Court ruling that upheld the legality of the bailouts to the troubled EuroZone member states provided a breath of fresh air for the markets, as it also made sure that any
to bear the brunt of the burden. More importantly, the German court ruled out the possibility of “eurobonds” that would be backed by the taxpayers of all EuroZone nations, thought by some to be the solution to the current crisis that will restore confidence to the debt-ridden members. Te fact that austerity measures have not shown to have an overall positive effect on the
46 FX TRADER MAGAZINE October - December 2011
future bailouts will have to be approved by a parliamentary panel. In the long run, this isn’t good for the euro as Germans, along with other Europeans, have become increasingly hesitant in playing the role of savior and having
economic system, a growing consensus within Europe believes the EuroZone will be better off letting Greece default. Although the initial reaction to this news was euro positive, we feel it was only a reason to book profits and provide an opportunity
to
reestablish longer term selling positions.
EUROBONDS/ EFSF
Te German court decision
has not
shut down the idea of “eurobonds” within some political camps. European Co m m is s io n President Jose Manuel Barroso
told the
European Parliament that he is planning to present options
for
European Commission President Jose Manuel Barroso told the European Parliament that he is planning to present options for the introduction of common eurobonds
the introduction of common eurobonds. Te idea is to provide insurance
to debt
holders and lower the
overall yield
that public markets demand from
struggling economies such as Greece. Currently, yields have risen to record highs, asking 143% return for one year note, 76% for two year note, and 25% for a 10 year note. Asking the Germans or the French to take on fiscal responsibility for Greece, Spain, Portugal, Italy, and/or Ireland, given that previous cost-cutting measures have
further deteriorated the economies, is just
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