EUR/USD Trades in a Tight Range Ahead of Franco-German Discussion on EU Bonds
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EUR/USD Trades in a Tight Range Ahead of Franco-German Discussion on EU Bonds

EUR/USD Trades in a Tight Range Ahead of Franco-German Discussion on EU Bonds


The financial spread betting markets are entering yet another period of tense expectation as Sarkozy and Merkel meet to decide the future of the known world.

In reality we all know that there are just two choices.

On the one hand, Germany decides to become the backer of last resort for the whole Eurozone by agreeing to the issuance of EU Bonds.

On the other hand, Germany chooses not to emasculate themselves on the altar of political union and drops the whole mess onto the backs of the individual sovereign states. This would likely cause a break up of the Euro and another huge financial crisis.

Either way they are pretty much doomed to a poorer future, as are we all to a certain extent. The first choice would cost trillions of Euros, which will affect growth for years and the second would probably bankrupt most of their financial institutions, and wipe out the hopes of millions of retirement plans. Never forget that the biggest holders of bank stock and sovereign debt are the pension funds.

Nice choices.

It is actually tempting to state that, no matter what they do, it will make little difference in the long run. This is because the Western economies now have structural state spending requirement levels that are almost impossible, in a democracy, to alter.

With Money Supply on virtually every level contracting across the Eurozone and the UK, it is difficult to see where the growth is going to come from in the scale required to dent the growing budget deficits.

At some point every country in the West is going to have to have an 'NHS' moment. This is the point where the politicians finally build up the courage to cut back on the untouchables.

We are nowhere near this point yet and until we get there markets will remain increasingly exposed to the kind of chaos that we have seen over the last few weeks.

On the forex markets so far this month, the EUR/USD forex market has been surprisingly quiet, trading in a sub 4 cent range, making it one of the tightest fortnights this year. This is understandable on the basis that things are looking so fractured that nobody knows which currency is the diamond and which is the dog.

This is building up solid supports and resistance levels which forex spread betting clients, if they can be patient enough, have been trading off the back of. Support is at $1.4155/65 $1.4055/65 and $1.3950/60. Resistance is at $1.4400/20 $1.4450/60 and $1.4540/50.

No matter what the decisions over the next few weeks are, it would appear that there will be increasing issuance with falling growth which, you would have thought, should be bad for the currency.

On the other hand increased issuance may well lead to higher returns with reasonably stable credit worthiness which would actually make the currency quite attractive.

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'EUR/USD Trades in a Tight Range Ahead of Franco-German Discussion on EU Bonds' by DB, updated 15-Aug-11

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