Considerations for EUR with a Grexit

Considerations for EUR with a Grexit
April 2, 2015

The ongoing Greek drama puts into question the all important European project as the Eurozone will be hit right at the core if markets will push Greece into default. However, the big question on everyone’s lips is: will it be a Grexit and if so, how would the Euro react as a common currency?

To answer that, one should understand the very nature of the Euro as it was introduced in 1991. Also note that if you go on a broker’s trading platform and look at historical data, you will see that there is data way before 1991 for EURUSD. How is that even possible?

The answer is that projections have been made based on flotation between different currencies and then applied to the Eurozone project for the current currency. For example, historical data between Deutsche Mark and French Franc existed way before 1991, and it has been use to project the Euro before that data.

This is extremely important for traders making top/down analysis, starting from the bigger time frames like the monthly chart, and moving all the way to the hourly chart before taking a trade. If the old data is not correct, than patterns are wrong and of course their interpretation is wrong.

What does have to do with Greece? The above is to remind everyone that the Euro as a common currency, and it represents more than one country. If Greece chooses to leave the union, the Euro should strengthen rather than weaken.

The reason is straightforward; the positive aspect of being part of a union is that as a whole, Europe is stronger that any one country within it. However, the opposite is also true; and as a union, Europe must carry the burden of any one country that is not performing. Greece is eating a lot of capital and financial resources at this time, and if it does not require help anymore as it is no longer part of the common project, the European Union will end up being stronger as one of its resource draining countries will have been removed.

Let’s take the above scenario into consideration, but note that Greece won’t go anyway. According to existing lows, it cannot be forced to leave the union without its content. So any decision relies with Greeks and the Greeks only.

Coming back to the Euro as a common currency, throughout history, there is no common currency project that managed to survive. However, this time might be different as, beside the obvious high costs paid so far, there is some political and fiscal integration taking place.

Time will tell.

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Andrew Wright

Prior to founding in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.

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