Crisis of Confidence in the EU
The European Union (EU) constitution was dealt a double blow,
first by a French "no" vote on 29-May and then by a follow on
"no" from the Netherlands on 01-Jun. To add insult to injury, one
low level Italian diplomat quickly called for a referendum in
Italy to decide if a return to the lira was warranted.
Additionally, Prime Minister Tony Blair, who took over leadership
of the EU on 01-Jul, indefinitely postponed the British
referendum on the EU constitution.
This news along with plenty of speculation about the
repercussions dominated the international headlines for much of
the month of June. Not surprisingly, all the hubbub about the EU
had a direct impact on the FX market. The euro fell to a new
seven month low following the French referendum, reaching a low
of 1.2371 and the "single currency" has been under pressure ever
since. Probes below the 1.2000 level were seen ahead of 30-Jun,
suggesting additional near term downside potential toward 1.1756
Since the inception of the euro in 1999 central banks,
especially those in Asia and the Middle East were seen
diversifying out of dollars into the euro. They were not only
looking to scale back their substantial dollar holdings in the
face of a declining market, but they also sought the higher
returns available in the eurozone. However, returns on eurozone
deposits slipped below those in the United States in December and
the FED's string of rate hikes bodes well for those differentials
to further widen. Combine the better returns in the US and a
generally more favorable dollar outlook with the specter of
continued political turmoil within the EU and it seems there is
little incentive to hold euros at this point.
Truth be told, the EU was facing some rather significant
hurdles long before the double "noes" derailed confidence. Many
of these hurdles are associated with expansion. Discontent on the
part of established club members with the admission of central
European countries in May-04 and general hostilities about the
proposed admittance of Turkey played significant roles in the
recent referendums. In addition, diverging economic performance,
productivity growth, inflation and fiscal performance among
member nations are all fodder for further turmoil.
Worthy of particular note is the broad based economic malaise
in Italy. Italian consumer product manufacturers are losing their
battle with Asia and consequently the trade balance is moving
into the red. Unemployment is up, as is the budget deficit. Being
part of the euro, and therefore having a relatively high exchange
rate, essentially thwarts any effort to compete with Asia on
price. Without its own currency, Italy is unable to devalue out
of its non-competitive position. Hence, the aforementioned
comments by Italian Minister Maroni. Countries such as Portugal
and Greece are also in rather dismal economic health. The budget
deficit of the former has already reached 7% of GDP.
Many have noted that the EU constitution may be dead, but it's
not buried yet. I'm not so sure that I would agree as approval of
all 25 member counties is needed for ratification. The initial
thought was that any dissent was likely to come from newer or
smaller EU countries and that a little economic arm twisting by
the likes of France and the Netherlands might encourage them to
reconsider. Unquestionably the long standing skepticism of the
Brits was going to be an issue. However, rejection of the
constitution by two of the founding members of the EU certainly
throws a wrench in the works.
I don't believe that we need to worry about the European
Monetary Union (EMU) breaking up any time soon. In other words,
the euro will continue to be actively traded on the global spot
market. A Reuters poll early in June suggested there is only a 5%
chance of an EMU collapse within the next 15 years. However,
around the same time the German weekly magazine Stern reported
that the failure of the EMU was discussed at a meeting attended
by German Finance Minister Hans Eichel and Bundesbank President
Axel Weber. Having said that, I don't think there is any question
that there is a greater risk premium attached to the euro than
there was a month ago.
In the months ahead, look for continued political wrangling
within the EU. Further bad news is likely to be forthcoming,
which should help keep the euro under pressure, creating trading
opportunities not only against the dollar, but in the cross rates
Peter Grant is VP of Operations for CFS Capital Management
alternative investment firm in Lakewood, Colorado. This article
is an excerpt from our monthly newsletter 'The Alternative' which
can be read online at http://www.cfscap.com/news.htm.
Emails may be sent to firstname.lastname@example.org
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Discretionary Trading - Which is Best?
Discretionary Trading Pure discretionary trading will rely
solely on the traders judgment. For example a
discretionary trader may spot a particular pattern
developing on a chart and decide to enter a trade on that
5 Questions You Need To
Have Answered Before You Back-Test Your Forex
As 90-95% of new forex traders lose money within the first
3-6 months this article helps to guide new forex traders by
asking 5 questions that the forex trader needs to know
prior to back-testing their forex system. Let us jump right
Facts of Day
Are you thinking of entering the fast-paced world of day
trading? Arm yourselves with the information from this fact
sheet on day trading. What is day trading? Day trading is an
investment tactic that does online daily stock trading with
a relatively short investment.
A broker is any person or firm that charges a fee in
exchange for executing trades for a trader. A Forex broker
does not charge a commission for placing a buy or a sell
order the way a real estate broker would charge a
percentage fee of the total price of a sale.
Most traders tend to concentrate on pinpointing the perfect
entry for a trade. However, in reality the entry price is
just one part of the equation.
How Do Other Countries
Devalue Their Currencies?
Countries devalue their currencies only when they have no
other way to correct past economic mistakes - whether their
own or mistakes committed by their predecessors. The ills of
a devaluation are still at least equal to its advantages.
"FX" is an abbreviation of "forex" or "foreign exchange."
Foreign exchange is the largest and most liquid market in
the world trading approximately $2 trillion every day
(that's over 30 times the daily volume of NASDAQ and NYSE
Online Stock Trading:
Freedom of Trade
I remember the first time I started to trade online. It was
just before the tech bubble of the late 1990's and the
internet was still something new for most people.
Intrenet Marketing VS
Forex Currency Trading
Have you noticed that when someone's trying to sell you
something - such as a system for making money - they always
make it look far easier than it is? Let's look at two
Internet businesses, almost as diametrically opposed as
it's possible to be - Internet Marketing and Forex Currency
Trading. You've probably heard the old Internet adage -
build a better website and they will come.
Money Management, Part
There are some common mistakes I've seen traders make in
the area of money management. First, let's understand what
money management is all about.
Two Timeless Rules in
RULE #1) ~ Cut your losers; let your winners ride. One
important thing that every new trader must know before
entering this highly profitable business is that life is
not perfect, even in FOREX land, and you should always know
one fact: YOU WILL HAVE LOSING TRADES.
FOREX - Where Fortunes
Are Made Everyday
The Foreign Exchange Market - better known as FOREX - is a
world wide market for buying and selling currencies. It
handles a huge volume of transactions 24 hours a day, 5
days a week.
I read on a bulletin board a traders comment that on his
first outing trading the E-Mini S&P 500 he lost on each
of his trades. He noted though, that had he had a wider
stop each of his trades would have been profitable and that
therefore he would be trading with a wider stop in future.
The Miracle of
My father, who owns a small parts store and garage for
vintage British sports cars, called me up recently and
droned on and on about how he is getting killed by the
Euro. Confused as to how the Euro could possibly be
affecting his small and seemingly insignificant business, I
asked him how.
Throughout our course on futures trading, we have tried to
point out to you that there is a great difference between
having an investor attitude and being a trader. There are
also many similarities.
Day Trading the Index
Futures - How to Judge Good Entries
QUESTION: If the SP futures fall through support and go
straight down for another two points, and I want to get
short, should I a. enter immediately, b.
Hedging Foreign Exchange
The exchange rate of the Macedonian Denar against the major
hard currencies of the world has remained stable in the
last few years. Because of the IMF restrictions, the local
Narodna (Central) Bank does not print money and there are
no physical Denars in the economy and in the local banks.
Ways to Acquire
Discipline in Trading
One way to acquire discipline in trading..
Trade Exit - How To Cut
Losses And Let Profits Run
Cut your losses short and let your profits run. This is the
essence of your trade exit rules.
A Beginner's Guide to
FOREX is the abbreviation for the Foreign Exchange market.
FOREX is basically an international exchange market where
currencies from all over the world are bought and sold for
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