The topic of the Euro's fate has been the center of global and economic conversation for months and rightfully so. From the Euro's genesis, economists have questioned whether or not a centralized currency like this one could sustain itself in times of crisis. The unraveling of the European economy sheds new light on this line of reasoning. And in terms of economic events, we are seeing a domino effect within the EU and the pieces are falling fast. French Elections. Greek fury over austerity. Rampant Spanish unemployment.
Over the last few months investors have been subjected to a yo-yo diet of so-called fixes. Greek deal. No Greek deal. Spanish yields going parabolic. We have witnessed Italy and Spain emerge into economic crisis that has resulted in a significant amount of turbulence within global markets. And the crisis continues to build as turmoil erupts in France and Greece this week reaching new extremes for the catastrophe that is the EU. French and Greek voters alike have voted against austerity measures, which were designed to reduce government spending and debt levels. Did France and Greece destroy what could have been the Euro's saving grace?
France announced Francois Hollande as their new President on Sunday and doubts were immediately cast upon his plans for budgetary reform. Hollande has stated that he is not willing to ratify the European agreement unless it has been rewritten with new terms that allow for economic growth rather than cutbacks. Chancellor Angela Merkel from Germany has structured the agreement to reduce government spending to 3% of GDP. This would, over time, allow for countries within the EU to recover from their dire straits.
In Greece, there were no governments formed after Sunday's election. They are in the midst of another recession and are at a stand still until the bailout coalitions are able to strike a deal regarding whether or not to proceed with yet another bailout.
These struggling European countries are moving in circles, every positive movement they make is ultimately counteracted by a negative one. Lack of reform and resistance to change will ultimately crush everything that the Euro is and stands for. These painful events are indeed breath taking but will they learn their lesson before its too late?
Euro Dives after French and Greek Elections
Immediately after the results of the elections in France and Greece were made public, the Euro took a nosedive falling from $1.3084 to a low of $1.2953. This event certainly looks like it could be the "tipping point" for the fate of the Euro. Will these EU countries continue to unravel or will a new European agreement hold it all together?
Indicators on watch this week
- French Presidential Election
- Greek Parliamentary Election
- ECB Publishes May Monthly Report (Thursday)
- German Consumer Price Index (Friday)
- European Commission Releases Economic Growth Forecasts (Friday)
Technical Outlook:
The EUR/USD has completed its consolidation moving through waves A, B, C, D and E and has surpassed my expectations by 83 pips. My original target for the completion of this consolidation pattern was conservatively placed at $1.3036 but the pair reached a low of $1.2953, the lowest levels the EUR/USD has seen since January of this year.
(click to enlarge)
What's next for the Euro? There is a possibility that we will see a temporary recovery perhaps in the form of an extended consolidation pattern while certain economic outliers are pending. But the ultimate direction of the Euro is bleak.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
