World leaders assembled over the weekend at the 2012 G8 Summit to discuss the crippled state of the European economy. Over the last week, global markets have been in complete turmoil over Spain's banking problems and the worsening debt crisis in Greece, which renewed fears over the country's ability to remain on the Euro.
G8 Leaders have expressed their desire that Greece remain within the eurozone in light of the country's economic and political unrest, but have strongly urged that Greek leaders adhere to the agreed upon bailout measures. Restoring the eurozone will require cohesiveness amongst the Euro nations, but if Greece chooses not to play by the rules then it will be almost impossible for Europe to weather this economic storm -- the first domino would be tipped.
The event created a sense of optimism in the markets causing the EUR to gain strength against the USD, bouncing back this week from a four month low. However, this bullish turn will likely be short-lived. I am remaining bearish on the EUR.USD and projecting that the overall trend will continue downward.
The Greek debt crisis has caused a rippling effect within the EU and the problem will not be easily fixed. The country has already borrowed more money than it is able to pay back, and is now in the process of borrowing an additional 240 Billion Euros from the EU and IMF as an "emergency loan". To make matters worse, investors holding Greek debt have been forced to write off 50% of their loanable funds. When do investors say enough is enough?
Greece is looking more and more like a "black hole" that the EU keeps throwing money at in the hope that their problem will just go away. With new elections fast approaching, the endgame for Greece could be sooner rather than later.
Indicators on Watch
- German Gross Domestic Product (Thursday)
- USD Durable Goods Orders (Thursday)
Technical Outlook
The EUR.USD recently broke out of its consolidation pattern into a downward trend reaching a low of $1.2642 completing an "A" wave movement. The current "B" Wave or the bullish reversal will likely be short-lived and is commonly known as a "sucker play". My projection is that the pair will reach close to-- if not just past-- $1.2888, and then pivot and reverse, continuing in its downward trend falling within the $1.23 range.
(click to enlarge)
