Now that Greece is Guaranteed in the Euro, the Euro is Down
Currencies / Euro Jul 21, 2015 - 05:31 AM GMT
One of the mantras repeated to exhaustion over the last few months was “if Greece leaves the Euro, the Euro is over”. Is it? The charts say the opposite. When the prospect of Grexit reached its peak, the Euro didn´t crash. Quite the opposite, it got stronger. Now that Greece seems “secure” in the Euro, the Euro is down. Could the Grexit mantra be wrong?
Mantras are designed to reinforce ideas, not to make people think about them. If an idea is repeated “ad nauseum”, most people end up accepting that idea without actually knowing why. They just do.
Most people and analysts will swear that Grexit will destroy the Euro. But not many give rational explanations as to why. The Atlantic Perspective explained in detail, about two weeks ago, why Grexit would actually be good for the Euro. You can read that article here: http://www.atlanticperspective.com/top-stories/july-12th-2015
Since Grexit was avoided, the Euro hasn´t done anything but fall. Based on actual market behaviour and not on speculation, we can narrow Grexit´s impact on the Euro to two outcomes:
1. Grexit is good for the Euro.
2. Grexit is irrelevant for the Euro.
Charts don´t lie:
The Euro´s response during and after the Greek negotiations, excludes the option of Grexit being bad for the Euro. The Atlantic Perspective maintains that Grexit would be good for the Euro for the following reasons:
1. Economically speaking, Greece counts very little in the Eurozone. The direct economic impact of Greece leaving the Euro or even the EU is absolutely marginal.
2. Private investors and world institutions know for a long time that Greece is broke. The possibility of Grexit has therefore been anticipated and doesn´t come as a shock to anyone. The Euro has priced in this possibility, a long time ago.
3. The stock market is forward looking. The Greek ordeal is yesterday´s news to investors. Big money is more concerned with the next big tech leap or the possibility of a financial crash in China. Greece is just a distraction.
4. The billions given to Greece to avoid Grexit, would get a much better return if used within the lending nations. The markets would prefer that the bailout money would instead be used to help revive the European economy. This would be much more productive. This aspect is never mentioned and penalizes the Euro.
Euro/Dollar forecast:
Now that it seems clear that Greece will stay in the Euro (at least for the next few months) while the bailout program is implemented, we expect the Euro to trend down and test the lows established a few months ago. If new lows are established, then there is a real possibility of the US Dollar reaching parity with the Euro before the end of the year. That´s the Atlantic Perspective
Copyright © 2015 by The Atlantic Perspective.
The Atlantic Perspective is an opinion blog, aimed at explaining and providing solutions to some of the world´s most relevant issues.
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