Germany are in charge and working hard to highlight the how inclusive they can be towards the rest of Europe.
But they haven’t done enough to save the tragic Greek act.
Greece are about to go out …
… can Cyprus save them?
Will Portugual be next?
That’s right – it’s the Eurovision song contest tomorrow.
The world was a very different place back in 1956, when the contest began.
It was the cold war and Europe was living in fear of the twin imperial powers of Russia and the US. In fact, it was aired in the very same week that American detonated the first aerial hydrogen bomb.
Europe had good reason to try to bolster their sense of solidarity.
Many people have complained about the overtly political voting that’s gone on in recent years, but it has always been this way.
(Let’s face it, you’d have to be deaf to believe that Eurovision was about the music.)
In 1961, when Franco’s Spain joined the competition, this had to be carefully balanced by the inclusion of Yugoslavia. And when the Israeli contestant looked set to win in 1978, many Arab broadcasters cut transmission.
Despite the dodgy folk crooners and the odd comedy song, there’s an air of seriousness about the contest this year. The cold war may be over, but Europe feels a very different cloud hanging over it at the moment. And Germany, the host country feels the pressure acutely.
The German foreign minister vowed “In a single night, we will disprove many longstanding prejudices.”
If only the real issues facing Europe could be solved that simply.
Of course, what I’m really talking about here is the recent plummeting of the euro and how it will effect your trades.
Exercise caution with Euro trades
EUR/USD DAILY CHART
At the end of last week, German newspaper, Der Spiegel published an online report claiming that Greece was considering an exit from the Euro Zone.
“Spiegel Online has obtained information from German government sources knowledgeable of the situation in Athens indicating that Papandreou’s government is considering abandoning the euro and reintroducing its own currency.”
As a result of this report, the Euro suffered its worst two-day plunge since December 2008.
This week we have been inundated with denials from Greece and from European Union officials.
But a satisfactory “way out” for Greece is hard to see.
Greek debt has become exorbitantly expensive, and the country’s credit rating has again been downgraded.
Angela Merkel told reporters, “We can offer solidarity only if Greece’s stability and eagerness to reform is proven.”
She’s talking about more cash – and more conditions.
Just how long Greece will stand by and let the Union give handouts – while at the same time hitting them over the head with a big stick for being so reckless with their credit cards – remains to be seen.
Where is the euro headed?
And the question for us forex traders is – just what does that mean for the Euro?
There’s no doubt that the Euro has taken a tumble this week, but it is worth bearing in mind that a lot of this uncertainty was already built into the price. While much of the media have been looking elsewhere, forex traders hadn’t forgotten about the euro crisis. And short-term bailouts were never going to make the problem go away.
But if Greece carry out the threat (that they claim never to have made) and leave the joint currency, there will be considerable strain placed on the Euro. As is so often the case with forex markets, there are so many variables that it is hard – no, impossible – to predict the outcome.
But the fear will be of contagion to Portugal and Ireland, causing a run on the euro. The Germans will fight these defections tooth and nail – as it’s their banking system that will take most of the strain.
A quick look at a long-term chart for Eur/USD shows just how far the Euro has to fall.
But, in my opinion, ripping off the plaster and dealing with the problem is preferable to the slow, slow torture that’s being inflicted with austerity measures at the moment.
And I can’t help thinking about what a huge handful of drachma I could get for my pounds at the airport next summer!
My advice – be very cautious in Euro trades – and make sure that you always have a sensible stop loss in place, as we can expect a rough ride ahead.
In the next seven days
In the eurozone, the ZEW economic sentiment index on Tuesday could show its third successive monthly decline.
On the same day in the UK, we have the consumer price index, and Mervyn King will (again) be writing to the Chancellor to explain why inflation is above the 2% target.
Fuel prices, of course, are the big villains, as Mr King explained this week, along with the sobering news that we can expect to see 5% inflation before the end of this year – and for much of next year.
If anything should motivate us to knuckle down with our trading and accrue some steady returns – this news would do it!
From the US, we have capital flows data on Monday, which tells us about foreign demand for US securities. On Wednesday we have the FOMC minutes; and home sales figures on Thursday.
And finally, if you’re following oil prices in the build-up to the US driving season – the US crude oil inventories come out on Wednesday.