How Far Will This Empire Fall?
The Eurozone's house of cards is already on a shaky foundation. Greece is on the verge of a full societal collapse. Spain's rampant unemployment rivals the Great Depression. A negative reaction from Italy and France could lead to an utter catastrophe... Once the first domino falls the game is over…
The Euro continues in its downward spiral this week as the EU suffers one devastating blow right after another. Over the weekend, Greece’s government was forced to bailout four of the countries largest banks, which cost them a sum of 18 Billion Euro’s.
Talks of a Greek exit from the currency bloc continues to heighten this week, but a chief concern for Greece right now is that if that comes to pass that there will be a front-run on the banks; which could mean “capital flight”. The economic effects of an ordeal like this could not possibly be contained to Greece alone, and would ultimately spill over into bordering countries impacting their economies as well. An unsettling question for the EU is that if Greece chooses to make their exit, will other countries follow suite?
Account holders in Greece are in “reaction-mode” as many of the countries citizen’s have already withdrawn their funds from Greek banks and sent their wealth abroad – Is this just the beginning of what’s yet to come?
Spain remains under fire this week as the countries credit rating has been downgraded from “BB-” to “B” by Egan Jones Rating Co., which pushes their credit status further into “junk territory”. The rating company has stated that there is a 15% probability that Spain will default within a year. This event coupled with rising unemployment and a poor banking situation will make it tough to keep investors from fleeing the scene.
EU Cracks Cause Fissures In Chinese Facades
The EU is not the only one under fire from this economic collapse. The opposite end of the globe is also feeling the heat. China’s economy is slowing as a result of the EU crisis; export growth is slipping into single-digits with actual growth at about 6.9%. Analysts have projected that this could derail the countries long-term economic plan.
Chinese officials are in the process of discussing the details of a bailout that would prop up their economy but they are worried that the country will become addicted to these stimulus packages much like the US and the EU are…
Once the first piece falls there is nothing to do except watch the full collapse and then determine how to pick up the pieces for a reset. The impacts of an EU collapse are so far reaching that it could mean a global reset…
Indicators on Watch
- German Consumer Price Index (Tuesday)
- German May Unemployment Data (Thursday)
Technical Outlook
My recent “macro projection” for the EUR.USD was that the pair would fall to a low of 1.19 before reversing temporarily. I am remaining bearish on this pair and still agree with the overall direction. The pair has zigzagged down the projected path falling from 1.3150 and has reached a low of 1.2461 so far. My near term projection is that the pair will reach $1.2266 to complete the “C” wave on a minor scale (as indicated in red) and will then continue to zigzag down as wave“(A)” did.
Justin Burkhardt
Editor & Currency Strategist
FXFocus.com | @jdburkhardt [8]
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