Debt Jubilee

All of the major stock indexes are trading sharply higher today after a European bank recapitalization was announced during the European Union summit. If we have learned one thing by now, the markets will rejoice on any type of bailout news. The bottom line, debt continues to bailout debt and that theme has not changed since the Dow Jones Industrial Average crashed in 2008. The big question that everyone must ask themselves is how these banks can afford to take on new debt. In the United States the four large banks are able to do so because they can borrow money at zero percent from the Federal Reserve, however, that is only the four largest banks. The bailout in Europe is huge and will cover hundreds of banks. Again, the details here are very sketchy and nobody really knows what is going happen after this institutional euphoria wears off and the real details are released.

Today, the Euro currency is moving sharply higher against the U.S. Dollar. The EUR/USD is trading at 1.2683 after trading as low as 1.2425 yesterday. This jump in the Euro currency destroys exports and hurts the economies of every European Union member. It is still amazing that the stock markets around the world will jump higher and inflate on the back of the falling U.S. Dollar. Traders must now watch for resistance on the Euro currency around the 1.29 level in the near term. Either way, the strength in the Euro looks to be temporary. In fact, every bailout solution by the European Union seems to be temporary. Traders that want to play the Euro currency can always follow the ProShares UltraShort Euro (ETF) (NYSEARCA:EUO), and the CurrencyShares Euro Trust (NYSEARCA:FXE).

While the world stock markets rally higher traders look for the next chance to fade the inflation rally. Generally, these rallies can last a few weeks before the problems are bigger than the last time. Just look at some reports today by Ford Motors Co (NYSE:F), and Nike Inc (NYSE:N). Both of these companies reported massive global slowdowns. This is why it is important to follow the charts as a trader. This rally will simply lead to more trading opportunities.