Key News

• The euro weakened to a 10-month low against the dollar after government officials said the European Union may need International Monetary Fund help to bail out Greece. (Bloomberg)
• Portugal had its credit grade lowered one step to AA- by Fitch Ratings, which cited the nation’s deteriorating public finances. (Bloomberg)
• Chinese executives are joining U.S. President Barack Obama in backing a stronger yuan, even as Premier Wen Jiabao says the currency isn’t undervalued. (Bloomberg)

Quotable

“I've come to realize that life is not a musical comedy, it's a Greek tragedy.”

                           Billy Joel

FX Trading – European Monetary Dis-Union and schadenfreude!

scha·den·freu·de –noun satisfaction or pleasure felt at someone else's misfortune.

Given the German inspiration for the events playing out in the European Monetary Dis-Union, schadenfreude is a word rushing to the front of my think skull this morning as the euro puts in a new low in this cycle against the US dollar.

Mind you, it’s not because of the suffering which will likely flow from austerity: bankruptcy, job loss and the like. That pain is real. But, one pays the price for wild parties—in this case it was a debt orgy funded artificially thanks to the structure of the European Monetary Dis-Union. [Knock-knock United States government! Is anyone home?]

My bout of schadenfreude flows primarily from the fact that for the last couple of years we’ve had to endure the intellectual lightweight-ism of those who said the euro was the currency to replace the US dollar. It was nonsense then; it is finally being seen for the nonsense it is now. Hopefully said seers will scurry back into the baseboard from which they came. Doubtful though. They will create a new mantra to hawk their wares triggering the faithful stream of lemmings from across our fair land as swallows returning to Capistrano. But I digress.

We have said it, written it, and discussed it many times in the past; here and elsewhere. The Eurozone is simply not fertile ground for a common currency. Period! Almost end of story. [The gory details of why were laid out by us back in June 2009 in a 20-plus page report warning of the potential demise of the euro, titled, “Preparing for a Breakup in the European Monetary Union.”Click here to download a copy.]

On Monday night we finished penning our latest installment to our June 2009 report (see the note from David Newman below on how you can receive a copy of that report. In it we detail why the market has not yet priced in the inherent risk to the euro).

It seems we are now moving onto the next phase of the crisis, whereby the market begins to realize the extent of the malady suffered by the rest of the sick sisters who are part of the European Monetary Dis-Union.

Interestingly, despite the spectacle presented by Mr. Popandreau, Greece’s perpetually pontificating prime minister who never seems to be able to find a microphone he doesn’t like, proves once again the words “government credibility” are oxymoronic. [US citizens know all about that. As the latest “achievement” from hell here has placed the US government squarely at the top of the world oxymoron class; but I digress.]

From a technical standpoint, the next likely target for EURUSD is near the 1.3100 level. It would represent a nice extension of minor wave -5- down based on the stylized Wave chart we’ve been working from, we share below:

EURUSD Daily

Can the euro go a lot lower? Absolutely! Will it? We think so. Par is another word we have been using lately.

But careful we must be not to let our schadenfreude morph into hubris.