After being away from the daily skirmishes in the currency wars for over a week, there is always apprehension about your return. Might there possibly be a new set of drivers in these markets, drivers that will make the anticipated market response even harder to detect?
In retrospect, the market seemed to have determined the euro was unruly, a dysfunctional currency ill suited to fulfill the needs of the divergent euro members. As such, the imminent dissolution of the euro should not be a surprise. so it is best to take defensive actions to protect your assets.
Now ten days later, the number of euro participants remains the same, and there is not a wide variance in currency values. This is not to deny the existence of daily rumors about pending changes in the euro community which might influence the euro's value.
The issues are bigger than changes in Central Bank Policies, Bank Rates and what might the potential role be for the Central Bank. Might these policy issues cause the economic activity to contract, putting further pressure on the crumbling European economic front? Will the euro bankers be able to solve the problems, or are they merely headed to a repeat of a Bear Sterns, or a Lehman Brothers collapse?
At the moment it appears that the pressure is off of the euro. Despite an ill conceived currency seemingly designed to fail, the euro does have a lot of fans. Currently the euro proponents are regrouping, perhaps organizing the next can kick down the field.
There are some interesting observations in Market Watch today by Matthew Lynn's London Eye, 5 Ways to Trade Europe's Game of Chicken: The whole article is a great read. He begins:
"Conventional economics is now largely useless in trying to analyze the twists and turns of the unfolding euro crisis: It has long since left behind any rational calculation of what is good and bad for the continent. Instead, it is best understood as a branch of game theory. And the game being played right now? Chicken.
The markets take the euro zone to the brink of collapse. Asset prices plunge. As they peer over the edge of the abyss, the leaders of the euro zone and the European Central Bank take fright, and come up with whatever is necessary to keep the system from collapsing.
The can gets kicked down the road - until the whole crisis blows up again in a few months' time. It's happened a couple of time already and it's about to happen again."
If you think the euro boys can put together a few more kicks, or "tricks," then you can prepare to sell the next successful can kick. Then, when the euro world is about to end, and it looks like Frau Merkel will never say yes again, go the other way. If you are nimble, this might be a busy active summer.
Remember not all your money goes in one trade. A weak euro is probably a great time to buy German, Dutch or French retailing companies which will benefit immensely from the weak euro.
In nervous volatile markets you need to mind your money. Not all trades will be winners, so just don't take it personally when you get tangled on the wrong side of the market.
Click to enlarge
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.