Something doesn’t add up here. With the bailout of Greece now a near certainty, the European Union has essentially pledged to be the lender of last resort for all struggling European nations. As I’ve repeatedly maintained, this is a terrible precedent.
What doesn’t add up here though is the market's reaction to this news. In essence, the risk trade has taken off. The euro soared on the news, the dollar tanked, commodities exploded and all risk assets shot higher.
Curiously though, this is anything but a euro strength story. In fact, this is a euro weakness story.
For now, this looks like nothing more than a knee-jerk reaction by the massive short position that has recently unfolded in the euro. This does not strike me as a “risk on” event. In fact, it strikes me as quite the opposite.