The Euro and the Greek Bailout | Elliott Wave International

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The Euro and the Greek Bailout
Discussions of the euro's "fundamentals" may tickle your brain, but they can get you "stuck" when you need to anticipate the trend

By Vadim Pokhlebkin
Tue, 14 Jun 2011 11:15:00 ET

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On June 13, Standard & Poor’s lowered its credit rating for Greek debt -- again. According to MarketWatch, this pushed "the cost to insure Greek debt against default, already the most expensive in the world...to a record."

Greece clearly needs help, but what makes the problem so thorny is the disagreement between Germany and the European Central Bank as to how to handle it. Germany wants Greek bond holders to share the pain with Europe's taxpayers, but the ECB says the terms promised to Greek bond holders shouldn't be altered, lest other European bond investors become spooked. Meanwhile, European Economic and Monetary Affairs Commissioner says that the failure to reach a bailout agreement would be a “Lehman Brothers catastrophe on European soil.”

He's not the only one worried. On June 13, the euro fell to a new record low vs. the Swiss franc. As the June issue of our own European Financial Forecast points out, "the euro-Swiss cross rate gauges stress in Europe’s currency markets, because the trade approximates the amount of money flowing in and out of Switzerland from the eurozone." The EUR/USD, euro-dollar exchange rate and the most actively-traded forex pair, has also been moving against the euro: From the June 7 peak of near $1.4700, it has lost almost 400 pips (4 cents), falling as low as $1.4307 on June 12.

Given this background, everyone wants to know, "What's next for the euro?" But while it may tickle the brain to look for answers in the "fundamentals," they can get you "stuck" when it comes to anticipating the trend. Here's why: If you feel bullish on the euro, you might argue -- like the Bundesbank President recently did -- that even if Greece defaulted, "the euro would even in this case remain stable.” Or, you could argue that the Greek default would jeopardize the creditworthiness of the entire European Union, thus being a super-bearish event for the common currency.

Technical analysis and the Elliott Wave Principle, on the other hand, offer more clarity. Instead of juggling the fundamental "what-ifs," Elliott helps you track the collective psychology of market participants. After all, prices only move because traders move them, so what better indicator to focus on than traders' collective emotions?

Here at EWI, we have an entire service dedicated to the forex markets, Currency Specialty Service. The Wave Principle postulates that markets develop in a series of patterns -- five-wave patterns followed by three-wave ones. Here's a daily chart of the EUR/USD copied from the June 13 End-of-Day Forecast page of the Currency Specialty Service (some Elliott wave labels have been erased for this article):

As you can see, at the recent peak of $1.4944, the EUR/USD likely finished a large 5-wave advance. Currency Specialty Service will tell you right now what that likely implies for the trend. Details >>

Tags: economic depression, Elliott wave, euro, eurozone, euro/USD exchange rate, europe, european central bank, European Union (EU), eurozone, forex trading, Greek debt, Lehman Brothers, Swiss franc, U.S. dollar

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