Euro Rises as Final Decision on Greece Nears |
The euro defied the odds in today's trading to climb higher against the U.S. dollar and the Japanese yen. At the moment, the euro rose 0.52% against the greenback to stand around $1.4186. The Japanese yen put up more resistance as the euro gained 0.47% against the yen to trade around ¥112.10.
The Eurozone leaders are set to meet on Thursday to discuss the debt crisis on the Eurozone periphery. In particular, the Eurozone leaders are set to discuss the shape of the new Greece bailout. Reuters reports the Europeans have still not reached an agreement on which form the new bailout should take. Germany, the Eurozone's most influential member, is pushing for a participation of the private sector in the second bailout. In reality, this means that the private sector should shoulder some of the costs of the debt crisis in the Eurozone periphery.
The German proposal has been received hostilely by the financial elites – the ECB and credit rating agencies. The latter have warned that any “voluntary” debt modifications, including postponing the payments and reducing interest rates, will be treated as a default. The Europeans cannot afford their plan to be declared a default, as it is very likely that the pressure would mount on Ireland and Portugal, before these countries would be turned into a new Greece.
The latest option the Europeans will be discussing includes a new tax on banks. This way, the Europeans are hoping they will gather funds from the private sector necessary to help them finance new bailouts without branding these bailouts as defaults. It remains to be seen what the response of the rating agencies will be.
The situation is deteriorating in Spain and Italy, as yields on 10-year bonds moved passed the 6% mark in both countries. In Spain, the bond yields reached 6.36%, moving dangerously close to the 7% barrier, after which analysts tend to lose confidence in a country.
At the moment, there are five frontlines in the Eurozone. Greece, Portugal and Ireland have already been forced to ask for a bailout, and the pressure is mounting on Italy and Spain. This club could get another member, as Belgium is unable to resolve its political stale-mate. Belgium is one of the richer Eurozone members, but has been plagued by the inability of its political elites to form a government more than a year after the election took place. The country desperately needs strong leadership as the country's debt ratio to GDP makes a number of investors anxious.
It is becoming painfully obvious that the Europeans cannot afford to simply patch things up whenever one country gets into trouble. The Eurozone needs to make a radical change in the way it is handling its debt crisis. The European leaders have until Thursday to find this new path.
Market players seem increasingly pessimistic about the Eurozone's prospects. According to ZEW, Germany's economic sentiment plummeted from -9 in May to -15.10 in June. Any level below zero indicates pessimism, while values above zero indicate optimism. The news will raise some eyebrows among investors as Germany has been the main driving force of the Eurozone economy. A slowdown in the Eurozone's largest economies might spill over to other members.
ACTION ITEMS:
Bullish:
Traders who believe that the Europeans will find a way to resolve the debt problems on the Eurozone periphery, which should provide a lot of headwind for the euro, might want to consider the following trades:
- EUR/USD Exchange Rate ETN (NYSE: ERO) is a long play on the euro. ERO should rise if the euro appreciates.
- Market Vectors Double Long Euro ETN (NYSE: URR) is another long play on the euro.
About the author: Benzinga
 |
