Contagion Fears Escalate in Europe as Euro Drops

Submitted by Marcio Pereira on Mon, 21/05/2012 - 10:42
in

Tradervox (Dublin) - Large speculators in the market are showing concerns that the euro will decline against the dollar as the region prepares for a possible Greece exit. The net shorts or bearish bet rose 143,984 to 173,869 last week. Analysts are saying that the market is reacting to the reality of contagion into Spain which will continue as long as negativity about Greece continues. Signs have already emerged after Spain’s 10-year bonds increased to 6.5 percent which is close to 7 percent which led Greece Portugal and Ireland to seek international bailout.

There are some steps that have been taken to help Greece stay in the 17-nation bloc. The new French finance minister, Pierre Moscovici will meet with German finance minister Wolfgang Schaeuble today in Berlin as EU leaders prepare to hold a summit on May 23 in Brussels. The G8 meeting held in US encouraged Greece to stay in the 17-nation trading bloc. Greece is expected to hold another election within six weeks as talks to form unity government failed.

Despite investors having faith in the commitment of the German Chancellor Angela Merkel to keep the monetary union running, fears that an exit of a small member such as Greece will cause more departure have escalated and large speculators and hedge fund traders have indicated that the euro might continue to drop against the dollar.

The euro has dropped from this year’s high of $1.3487 registered on February 24. The 17-nation currency has depreciated by 0.8 percent since March against most of the developed-market peers. The euro has remained little unchanged against the dollar trading at $1.2798 during the Asian session. The currency had weakened 1.1 percent against the dollar during the last five days. The continuing problems in Greece and the debt crisis contagion are some of the factors that are forcing the EUR/USD pair down.

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