The European rescue plan will not stop the fall of the euro

Brussels - October 16, 2008 - The plan of 1.1 billion euros with the countries of the European Union expect to rescue banks in the region may have arrived too late to prevent the further decline that has suffered up to the euro the date it becomes even worse. The currency strategists believe that these measures will not prevent an economic slowdown. "When the euro was bought, possessed, described and valued in excess," said Stephen Jen, global head of currency research for Morgan Stanley.

Morgan Stanley predicts the euro will shrink to 1.25 U.S. dollars for 2009, compared to 1345 today and 1.60 in July. BNP Paribas strategists, for their part, the weakness provide the single currency after "some support in the short term."

"When the euro was bought, possessed, described and valued in excess," said Stephen Jen, global head of currency research for Morgan Stanley. The analyst predicted in July that the euro will collapse, and since then the currency has depreciated by 15%. "The strategic perspective must be that liquidations will cause a worldwide recession of the euro," he says.

In April, economists from the National Bureau of Economic Research, nonprofit organization based in Cambridge, Massachusetts state of the United States, predicted that the euro would replace the dollar as the reserve currency of the world. The picture is not so promising now because it is expected that the region's economy will weaken more than the U.S. and European interest rates fall.

Finally, an agreement

Before last weekend, EU leaders were unable to conclude a plan to rescue the financial institutions affected by the stoppage of credit markets, causing the Dow Jones index of European banks are despeñara 55% between early September and on October 10. The pact of October 12 came more than a week after the U.S. launched its own rescue plan.

European leaders agreed to support the new bank debt and using taxpayers' money to keep afloat the entities in trouble, in order to stop the worst collapse of stock markets in Europe in twenty years and avert a recession.

Germany will provide 500,000 million euros in respect of capital and guarantees for loans, an amount equivalent to 20% of its economy. France has set aside 320,000 million euros to secure loans to 40,000 million euros to buy stakes in banks in trouble.

"We received a notice unified, but we are still awaiting details," says Simon Derrick, chief currency strategist at the London branch of Bank of New York Mellon, the world largest custodian of financial assets. "The lack of clarity in comparison with that of a single government, it is very noticeable at a time when investors yearn for clarity.''Envisages that the euro may fall below 1.20 in just one year.

Technical situation

The euro traded at this time virtually flat at 1.3445 U.S. dollars. "The single currency has fallen from the zone of resistance and therefore remained under the area of resistance after daring to face, without success, the hole that serves as a reference for her. Until this happens, prices have no alternative and meaningful reconstruction could live in any time new declines, "said analysts at Bolságora Ecotrade.

"The short-term objectives should be close to the 1.3 (First support offered by the natural range of Fibonnaci), while the potential bearish minimum levels should be lengthened to 1.21 / 1.08 before the prices are in a position to build a relevant ground, "added.

My Opinion

It is clear that at current levels would not savings, which would favor going into a recession.

Due to problems in the United States many people decided to take refuge in the Euro. ¿Overvalued? Quite possibly the euro is overvalued.

But rather than focus on the overvaluation of the euro, now we need to get off the euro as it would promote the exports of European countries and thus help a more rapid recovery of European economies, where the euro did not get off, the recovery of European economies will be more prolonged.

Source: El Economista