The recent €750 billion ($962 billion) aid package by the EU-member nations and the IMF has temporarily given the market some confidence, causing the non-dollar currencies, particularly the euro to rebound after last week’s sharp drop. It was also reported that the European Central Bank (ECB) will also intercede in the European bond market to likewise purchase sovereign debts of those countries that are deep in debt. Ahem! Greece. Ahem!
During the first four days of last week, the euro suffered some telling blows. The EURUSD, for one, plummeted to a low of 1.2522 after opening at 1.3348 during the start of the week. That’s an 826-pip crash right there! Ouch! It was only last Friday that the EUR’s dive got halted. The recent bailout news plus the ECB’s plan to purchase sovereign debts have pushed the EUR higher as it even gapped up to start this week.
While these notions indeed calmed the global economy at the moment, a lot of things are still uncertain. Note that these new loans will just be used to finance the countries’ old debt. So the question now is: When the new debt comes due, will Greece, for example, be able to repay them on time? Or will they need a new set of bailout? The market will only be truly at ease once these credits get paid in full on time. Such will likely halt the EUR’s recent descent. If not, then another massive sell-off in the market could occur. As for me, green is better than red so I prefer the former.