Friday, November 12, 2010

ECB On Path To Force Ireland and Portugal Bailout: Euro To Weaken

The financial crisis in Europe has escalated again, as if on cue. Last week we mentioned that the US dollar was too weak, in other words the Euro was too strong, and would thus cause some kind of bad news coming to of Europe to weaken the Euro.

Ireland, Greece, Portugal and Spain are all over the news again all of  a sudden. The premium investors charge to hold Irish and Portuguese debt over German bunds reached records yesterday ad today.

Says James Nixon, co-chief European economist at Societe Generale SA in London: “It is only a matter of time before the ECB is privately advising Portugal and Ireland to accept a bailout,” “The alternative appears to be either an interest rate that is too low for Germany or an appreciation of the euro that will condemn the euro’s peripheral economy to a long, slow death.”

Bloomberg: "Trichet may ultimately lobby Ireland and Portugal to tap the EU rescue fund for fear volatile markets will derail the ECB’s plan to keep withdrawing liquidity, or even impinge on its ability to set monetary policy for 16 nations,"

The losers in all this (besides all the hundreds of millions affected by the above mess): the Japanese, whose Yen refuses to weaken. So that will be the next shoe to drop.

ETFs: FXE for the Euro, FXY for the Yen

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