Is The Euro Broken?

Nearly each and every day there is a new report about another bank failure or bailout coming out of the European Union. The latest news has been about a bank levy on the Cyprus bank depositors with over €100,000 in an account. While Cyprus is a very small country, it is an international banking hub for many wealthy individuals. This is ultimately where the problem lies and it could be systemic to countries such as Italy, Spain, Portugal, Belgium, Lithuania, Greece, and others. So why do these countries stay in the European Union?

As long as troubled Euro-zone countries continue to receive bailouts why would they leave the union? Greece received several bailouts and may still need further money in the future. Spain, Greece, and Italy could actually be getting hurt by using the Euro as a currency. Has anyone ever visited these countries before the Euro was used? It was very inexpensive and the Euro has actually hurt tourism and exports for these nations.

Last week, the EUR/USD broke below the neckline of a a weekly chart inverse head and shoulders pattern. This is a bearish indication in the long term for the EUR/USD. Today, EUR/USD is trading higher on the trading session, however this small bounce is coming from a very oversold condition. So traders may not want to rush out this afternoon and short the EUR/USD. Traders will now want to watch for a potential bearish chart pattern to form and then look for further downside in the EUR/USD. Please remember, nothing in the market ever declines in a straight line so bounces will occur on the Euro. Ultimately, the Euro looks like it will decline further soon.

Some ways to play the EUR/USD are to use the CurrencyShares Euro Trust (FXE), and the ProShares UltraShort Euro (ETF) (EUO). Forex traders can both buy and sell EUR/USD at will. Some leading equities that could affect the action in the Euro will be the PowerShares DB US Dollar Index Bullish (UUP), and the Ishares MSCI Europe Financials Sector Index ETF (EUFN).