Euro Zone Crisis Threatens United States Recovery

As the Euro Zone crisis threatens United States recovery from the recession, G 8 leaders are closeted for talks at the presidential retreat at Camp David. The Euro Zone economic contraction, whether from excessive debt or austerity measures meant to reduce debt is on the verge of causing a social revolt in Europe. Recent elections in France have brought a socialist to power and the elections in Greece have left the country unable to form a government coalition. The price demanded by solvent EU nations for bailing out Greece, Portugal, Ireland, Spain, and Italy has been increased fiscal discipline. In fact, austerity measures have been taken on by nations across the continent. If economic production continued at the same pace, austerity measures would serve to reduce debt. However, austerity measures meant to reduce debt are throwing untold thousands and millions out of work and reducing the taxes that pay for national debt. The new government in France pledges to work toward more economic stimulus. It may be too late for Greece to remain in the EU. As threat of economic disaster rises the Euro Zone crisis threatens United States recovery as well. The two largest world economies are, after all, major trading partners.

Another Dip to the Recession

Many have feared and even forecasted that the Great Recession of 2008 and forward would last longer than anticipated. Looking back at the Great Depression of the 1930’s, two factors were important. One was that credit tightened and the other was that the US started a trade war that reduced world trade to a trickle. Government stimulus programs across the planet are working, to a degree, to keep credit flowing. However, a recession in Europe could have the same effect as a trade war, reduced world trade. Europe is a major trading partner of North America. It is also China’s biggest customer. With countries like Spain experiencing a 25% unemployment rate, demand for imported products is likely to reduce to a trickle across Europe. Demand for everything except the basics will reduce demand for European products as well. Reduced demand means fewer jobs and more unemployed in Europe and in countries with whom they trade. Thus the Euro Zone crisis threatens United States recovery and recovery in every corner of the globe. That being said, what is the best currency pair to trade in this situation?

What Does This Mean for the Forex Trader?

Currency traders who speculate in search of trading profits look for liquid markets. It is also useful to look for volatility. Trading a volatile Euro will be more profitable than sitting on a pile of highly price or low priced Euros. The Euro trades at high volume to the US dollar and the current situation where Euro Zone crisis threatens United State recovery mixes up the fundamentals as well as market sentiment on both sides of the Atlantic. A lot may or may not happen after the meeting of the G 8 leaders. Thus trading may be active in the coming weeks. As always we present this as a discussion of thinking through a Forex trade. Do your fundamental and technical analysis and never trade unless you understand what you are doing.