Tuesday, November 20, 2012

Eurozone back into recession; it makes no sense!

Can someone explain this to me, because I'm kind of lost when it comes to the relationship between the Euro currency and the Eurozone as a whole. CNN reported recently that the Eurozone has slipped into another recession, for the second time in four years. Things are pretty dire for the economy in Europe. Sky high unemployment - mainly predominant in the southern regions - and protests on the streets of Greece, Italy and Spain against austerity measures. Not a day goes by when there is talk whether or not the Euro currency will survive and about the disconnect between the country leaders and its people. The problem with Europe, unlike the United States, is that there are too many different countries who all have their own culture, language and opinion about how the entire Eurozone should be run. (Especially the language barrier and history is a major problem for business owners). Despite Europe's culture, which dates a lot further back than the US, Europe is fairly new when it comes to cooperation with other countries in which they, in a sense, have to deal with because they were pushed in a union. A union which was established to create a bigger and stronger economic block against the United States and Japan (and now China and Brazil).
Now the one thing I do not understand is why the Euro (vs the US dollar) is so incredibly overinflated. I have always said that, and I will say it again; it makes no sense! No wonder Europe is in a recession, it's certainly not helping if European goods are so incredibly expensive for economies outside Europe.
A perfect example is what happened today. France's credit rating was cut by Moody's from AAA to Aa1. The result? A spike in the EUR/USD. Do you get it? I certainly don't. Keep on reading for a chart of the FXE.

Shouldn't the Euro trade lower after news like that? I think it's a pretty big deal if one of the major economies of Europe has been downgraded. Hard to trade? You bet. That's the reason why I'm staying out of the currency trade for awhile, because to tell you the truth - it makes no sense!

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