Monday, May 17, 2010

Is the Euro a good buy?

Picture of the EuroIt looks like the Euro has finally stabilized a little bit against the USD making the Dow Jones close, after losing more then 100 points, a little higher (0.05%) today. After the free fall of the Euro currency since November where it was trading around 1.50 dropping about 1100 pips touching a  four year low of 1.2234. Greece's debt crisis and fears of other weaker EU members following made traders and investors dump Euros for 'safe' US Dollars.
This whole collapse I saw coming since the Euro was trading around 1.50 in November, back then I said that I thought it was 'amazing' how the strong Euro was holding its overvalued ground against the US Dollar despite economic turmoil on the horizon. Stories about PIIGS (Portugal, Ireland, Italy, Greece and Spain) defaulting were popping up left and right around that time. Sooner or later the ball had to drop. And oh boy did it drop! I never thought it was going downhill this fast, I was preparing more for a gradual depreciation of the Euro, where the currency would be trading in a sideways market for a few weeks and then break through it's resistance level and trade like 30 or 50 pips lower for a few weeks and so on until a price point we are at right now.

So is the Euro a good buy? Although to have lost almost 28 cents from where we were in November, the Euro is still about 9% overvalued against the US Dollar and 10% against the British Pound. So in that aspect it's very hard to tell. Forget technicals. Fundamentals are in play right now. It depends how the EU finance ministers and the Euro as a whole are approaching this matter. The rescue package can be a wonderful one, but if one EU member drops a bomb-shell of potentially stepping out of the EU zone (like France announced), more trouble can be in store for the Euro.

For the long term, what I found in my research, some analysts speculate the Euro currency to be trading around 1.10 or at par with the USD.

At the moment, I'm not going to trade this pair since it's way to volatile for me. I'll wait until there's a little more direction, technically and fundamentally.

Below is a video, courtesy of CNBC about the Euro crisis.

http://plus.cnbc.com/rssvideosearch/action/player/id/1496433987/code/cnbcplayershare

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All opinions expressed, trade recommendations/advice on this website are solely of John van der Munnik and are not affiliated with any investment firm or any other organization. You should not make an investment only based using this website VDM Trading for your trading needs without seeking help from your own financial advisor.