Why You Don’t Want To Hold Euros In 2011

It's safe to say that the trials and tribulations of Europe and the euro currency in 2010 resemble a wild rollercoaster ride.

Except for the adrenalin rush, of course.

Back in February, we covered the problems with the PIIGS (Portugal, Ireland, Italy, Greece and Spain) and the impending European crisis that would follow. The story has played out according to the script so far… except for one aspect.

The euro.

It's obvious that Europe's litany of deficit-born woes have hit the single currency. But the surprising thing is that the problems haven't dented the euro as much as they should have. In other words, the euro should be trading a lot lower today than it is.

Consider the fact that after bailing out Greece and Ireland, in addition to the previous stimulus and bank bailout packages, it's cost Europe close to one trillion euros. So with many more euros printed, it's quite surprising that the euro's only down around 15%. Moreover, most of that decline occurred during the first quarter of 2010… even though the rate of printing increased as the year went on.

How can this be possible? And what are the next twists and turns for the European rollercoaster in 2011?

Thanks, Uncle Sam
The only logical conclusion for the euro's failure to disintegrate lies at the feet of the U.S. dollar.
If this were just a self-contained euro crisis, the currency should have – and would have – fallen off a cliff. But since this is a global crisis in a global economy, the euro is falling… but at a diminished rate, due to the fact that the monetary authorities have printed just as many dollars.

However, this trend might not continue in 2011 and the euro's slide may resume, which would take the currency to new lows.

Not Just One Shoe to Drop in 2011… But Two
If you had just one word to define the economic climate over the past couple of years, "bailout" would probably rank very near the top.

Hot on the heels of the banks, auto companies, Greece and Ireland, we're likely to see two more next year – Spain and Portugal. Why?

Simple.


View the original article here