“The euro is the engine of destruction” – why the North/South divide in Europe will be the cause of its ultimate demise (but not just yet!!)

Wrote this post at the crack of dawn this morning since when eurusd has broken above 1.41 and heading towards 1.42 on back of much better than expected data from the US. So many commentators have written off the US but be prepared for a dramatic reversal, albeit one surrounded by massive volatility.

There is no backing down from ‘this’ persistent EUR decline. The market risk premium that was aggressively applied last week feels in danger of giving it all up and then some. Sentiment remains vulnerable allowing event risk to dominate on a disappointing of potential ‘under delivery’ at the Brussels Summit this weekend.

Overnight brought a host of further stress indicators to the fore. What’s bad for China is bad for Europe. Data revealed that Chinese growth figures fell short of expectations coupled with some disappointing earning from Euroland is again boosting market volatility. With Germany trying to manage market expectations, Moody’s is offering to do the same by putting France on a three-month notice. They have indicated that ‘pressure from debt metrics’ could leave the country with a negative credit outlook, even a downgrade, and this only months ahead of important elections.

Also getting traction this morning is Nouriel Roubini believing, pragmatically so, that the Eurozone requires the dollar to fall below $1 for a EU crisis solution and that the ECB needs to slash rates. None of these are new ideas, it’s perhaps the sensitivity of timing in such an important week for the vulnerable asset classes.

It goes to show how much rhetoric affects sentiment, as the weekend approaches expect this rhetoric to intensify.

Great roundup from Oanda & how markets can be affected by rhetoric (mostly empty) but which can gain traction so very quickly. All we can say about markets at present is that they are highly volatile & febrile and will continue to be so for the foreseeable future.

Euro project was a daft idea in the first place. No monetary union has ever succeeded without political union. However, a weaker euro would at least help the Club Med countries & Germany exports.

What about rogue politicians – Barroso is particularly repellent – ex Maoist – a traitor to his original beliefs & the people of Europe.

Although a tricky week for trading with Chinese on an extended bank holiday, PMI data & non farm payroll data on Friday trading opportunities do exist. However, with such high volatility it’s a question of getting in and getting out quickly, safely and profitably!