The EUR/USD pair fell again on Thursday as the Euro continues to suffer at the hands of a weak economy, and a massive debt problem. The area was rocked by the announcement by ECB Chairman Draghi that it looks as if Germany is heading towards a recession. Germany has long been the main reason for the Euro to at least have a glimmer of hope as they were the backbone of the economy.
While nobody is calling for complete destruction of the European economy, but the fact is that the region will have a slow economy for some time now, and there are problems that simply will not go away quietly. Want a perfect example? Spanish ten year bond yields are rising yet again. This after the ECB has stated they were ready to step in and buy bonds form any country that had issues. Quite frankly – it looks as if the bond traders aren’t that impressed.
The Greeks are rioting – again, and the Italians are also seeing weakness in their markets. All of this seems eerily similar to last year, and it appears that we are starting to focus on it all again. The problem simply isn’t going away.
America is giving the Europeans a hand now…
The Americans have many issues at the moment, and it appears that the dreaded “fiscal cliff” coming forward could be a real problem. At this point in time, there is a consensus that the Congress will find some way to come together in one way or another but I find this hard to believe myself. In fact, this could be part of the reason for the selloff in the stock markets Thursday.
I believe there is a decent chance at another “kick the can down the road” solution, but the truth is that the Americans could probably use falling off the fiscal cliff – Hey…..it would bring down the debt in short order. However, I am fairly sure that the US will find a way to not do much, but simply float along. So in other words, this pair will continue to be schizophrenic going forward. I do however; think that the 1.28 level will show some resistance. On the whole, I am negative on this pair for the next few weeks.