Greece Bailout Denied (For Now)!

Sean Hyman (February 23, 2010)

Why the Euro Will Continue to Suffer, and How to Cash In on This Trend With “Echo Trading”

The euro is flat-out collapsing. In November, the euro was reaching levels above $1.50. As of this morning, the euro is wallowing around 1.36, and looks to fall even further.

And it’s all thanks to the EU’s problem child Greece and her massive debt issues. The news over the weekend definitely didn’t help.

All traders were waiting to hear if there was some sort of rescue plan coming for the troubled nation. Instead, we just heard the German Finance Ministry spokesman saying once again that no bailout is coming.

Naturally, traders all over the world were hanging on his every word. You can tell because they all sold off the euro and the anti-dollar fell again this morning.

In my mind, the EU is just stalling. Eventually we are going to see a bailout. But bailout or not, the euro will fall in the short-term regardless.

After all, Greece has to maintain a certain status quo to stay in the Union. But the absolute worst decision would be to kick them out if the Greeks can’t comply. After all, what kind of a “union” would it be if they are losing members like that?

That’s why I’ve said for a while now that they would take “bad option number two” which is to bail them out. I was saying this back when Trichet was saying that it wouldn’t happen and that Greece would work themselves out of this mess.

But while everyone is waiting for a bailout, they’re missing out on an even bigger opportunity. I’ll get to that in a moment. First, let’s talk about Greece…

Greece Just Doesn’t Have What It Takes…

Frankly, there’s no way that Greece can recover on its own. This little nation cannot go from almost 13% debt to GDP levels down to a MAX of 3% even if they were given another year or so to comply. It simply wouldn’t happen.

However, like other traders, I was waiting to hear if Germany would consider bailing out Greece. Why? Because it would give me the rally upward in the bear market downtrend I needed to get a decent entry price into this downtrend.

We got the first rally over two weeks ago. Have we called the absolute top of this bear market rally? No one knows for sure. What we do know is that the downtrend is more likely to continue than it is to end.

Check it out on the chart below. I marked where the last rally within in this bear market trend happened…

The Euro’s Problems Aren’t Done Yet!

“Echo Traders” Cash In on This Euro Crisis

As an FX trader, I’m always looking for what other traders are buying and selling in the markets so I can jump on the trend. Some themes that I’m seeing in the markets right now are “euro selling & dollar buying.”

I think the “big money” from the big institutions are pulling their money out of riskier positions and shifting their portfolios to a more defensive posture. It’s causing an exodus from certain emerging markets and many stocks around the world as the biggest industry players move into defensive instruments like the dollar and yen.

Another theme I’m seeing in the markets right now: “Echo traders” are starting to pop up in the markets. They’re taking this euro crisis and playing this downtrend in the euro with several other currencies that track the euro’s path.

After all, the euro is the easiest prey right now with all of the negative sentiment out there (bailout or no bailout), so why not take advantage of it with the smaller, more volatile currencies that will move faster and give you more chances to profit?

Personally, I’m already starting to copy their best moves in the FX market.

Don’t forget that the overall Eurozone has a debt to GDP level of 6.4% right now. So the entire region’s average is over DOUBLE the maximum allowed. So this is more than a Greece problem. However, Greece is the worst one at the time, so it gets most of the press out there right now.

Regardless of what happens next, I see the euro falling. Make sure you’re in the best position to profit.

Happy Trading!
Sean Hyman, aka Professor FX

P.S. Tomorrow, we’ll be releasing a new special report that gives the full details on how these “Echo Traders” are using this euro crisis to their advantage. Please stay tuned.

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