By: Christopher Lewis

The Euro has been the center of focus for most currency traders over the last few months. We have seen the currency fall over time, but it has been amazingly resilient in general as the markets will step in and buy as various bits of good news comes out, or just simple suggestions of the possibility of decent reforms in Europe. The moves have been violent and the trading has been very difficult for anyone looking to hold onto a position for more than a few hours at times.

The rumors will come out about another “fix” in the EU, and the EUR/USD will suddenly skyrocket for a few hours. Certainly the markets want the Euro to rise in value as these reactions have shown, but there are signs that the eternal hope is starting to fall apart. This could be the start of the next massive leg down for the Euro in general as the trading world rallies for shorter and shorter time periods after each potential solution is either unveiled or simply suggested by rumor.

A perfect example happened Friday of this previous week as the EU summit produced a rally in many of the “risk on” markets around the world. Stock markets rallied, commodities rose, and bond yields fell in such places as Italy and Spain. However, the selloff in risk began almost as soon as the Monday open in Asia. Traders simply do not believe the “fixes” coming out of Europe anymore, and this will put the EU in serious peril.

The S&P ratings agency was the first major credit agency to suggest that downgrades could be coming soon in the EU for all of the remaining investment-grade countries. This was even announced before the summit, and since the results of that summit are somewhat disappointing, S&P could be downgrading the EU at any time. The next issue came with Moody’s suggesting the same on Monday, and Fitch has now stepped into the arena with further suggestions of downgrades form them as well. Further spooking the markets is the fact that even Germany is being considered. This goes to the absolute core of the EU.

With all of this in mind, it looks like we are a long way from the end of the EU crisis, and one feels that repatriation of Euros by banks selling off assets to shore up balance sheets will eventually slowdown. This will leave the question: Who is left to buy at this point? It indeed looks like the Euro has much farther to fall. All you have to do is look at the EUR/USD, EUR/GBP, EUR/Gold, and pretty much anything else the Euro is traded against – they are all showing an acceleration of concern at this point.