Learn Forex Trading Lesson 7b – Recent Trends in the Euro

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These are not the best of times for the Eurozone and its currency the Euro. The economic outlook in the EU is probably at its bleakest since the inception of the use of the single currency in 1999. We have at least five countries that have received some form of financial aid, or are being evaluated for possible bailout. Greece, Ireland and Spain have had all manner of debt troubles and are presently facing widespread opposition at home over the austerity measures that have been implemented as one of the conditions for such bailouts.

The result? We have seen the Euro plummet in the last 20 months from a high of $1.6032 to just about $1.3390 (as at January 4th 2011), with the Euro even heading as low as $1.1875 in June 2010 when the Greece problem hit world headlines.

Downward trend in Euro last year

Downward trend in Euro last year

The problem is further compounded by the fact that even within the Eurozone, there is a disparity in the bond rates issued by a country like Germany (which is on a firmer footing economically), and Greece for example. This divergence in the rates of government borrowing within the EU negates the principles of interest rate convergence on which the EU was founded.

Presently, we have seen some bit of Euro recovery, but with the economic situation in may of the Eurozone countries still unresolved and that of some other EU states still unknown, it is still pretty unclear if the present short-term Euro rally will hold.

As such, in the long term, we may actually see the Euro lose more ground, and so the recent gains may just be more of a pullback from the down trend. Ultimately, it is the events in the Eurozone economies that will determine the euro’s direction in 2011.

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