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Euro Carry Trade

Date post:27-May-2015
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http://www.TheForexNittyGritty.com - Euro Carry Trade - Will 1% loans from the European Central Bank to struggling European banks result in stabilization of the European banking system or a Euro carry trade?
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  • 1. WILL 1% LOANS FROM THE EUROPEANCENTRAL BANK TO STRUGGLINGEUROPEAN BANKS RESULT INSTABILIZATION OF THE EUROPEANBANKING SYSTEM OR A EURO CARRYTRADE? W W W . T H E F O R E X N I T T Y G R I T T Y. C O M

2. THE EUROPEAN UNION HAS BEEN IN ASOVEREIGN DEBT DILEMMA FOR A COUPLEOF YEARS. W W W . T H E F O R E X N I T T Y G R I T T Y. C O M 3. THE SOUTHERN TIER OF EU NATIONS, PLUSIRELAND, HAS BECOME THE PIIGS(PORTUGAL, IRELAND, ITALY, GREECE, ANDSPAIN) GROUP. W W W . T H E F O R E X N I T T Y G R I T T Y. C O M 4. THESE NATIONS, MOST NOTABLY GREECE,WOULD HAVE BEEN UNABLE TO FINANCETHEIR NATIONAL DEBTS WITHOUT AIDFROM LENDERS, THE IMF, THE EUROPEANCENTRAL BANK AND OTHER EU NATIONS INPARTICULAR. W W W . T H E F O R E X N I T T Y G R I T T Y. C O M 5. THE POSSIBILITY OF A BREAKUP OF THEEUROPEAN UNION OR AT LEAST THEDEPARTURE OF GREECE AND A COUPLE OFOTHER NATIONS LOOMED OVER THECONTINENT FOR THE LAST FEW MONTHS. W W W . T H E F O R E X N I T T Y G R I T T Y. C O M 6. JUST RECENTLY EU LEADERS MET IN PARISAND AGREED TO AMEND THE EU TREATYTO ALLOW CLOSER FINANCIALINTEGRATION. W W W . T H E F O R E X N I T T Y G R I T T Y. C O M 7. (READ THIS AS PUTTING A CAP ONPOLITICALLY MOTIVATED PORK BARRELSPENDING TO BUY LOCAL VOTES.) W W W . T H E F O R E X N I T T Y G R I T T Y. C O M 8. IN ADDITION EU MEMBERS GAVE THEEUROPEAN CENTRAL BANK GREATERAUTHORITY AND AUTONOMY IN DEALINGWITH THE OVERALL DEBT SITUATION ASMANY BANKS WERE WEAK W W W . T H E F O R E X N I T T Y G R I T T Y. C O M 9. AND MANY CONSIDERED A RUN ONFRENCH BANKS A DISTINCT POSSIBILITYAS MANY HAD INVESTED HEAVILY INBONDS FROM GREECE, ITALY, AND THEOTHERS. W W W . T H E F O R E X N I T T Y G R I T T Y. C O M 10. BUT, JUST WHAT DOES THIS HAVE TO DOWITH A EURO CARRY TRADE? W W W . T H E F O R E X N I T T Y G R I T T Y. C O M 11. THE EXPRESSION, CARRY TRADE, ISUSUALLY ASSOCIATED WITH THE YEN ANDNOT THE EURO. W W W . T H E F O R E X N I T T Y G R I T T Y. C O M 12. JAPAN HAS HAD EXTREMELY LOWINTEREST RATES FOR TWO DECADES. W W W . T H E F O R E X N I T T Y G R I T T Y. C O M 13. INVESTORS HOLDING YEN CAN ENGAGE INFOREIGN EXCHANGE TRADING AND OBTAINUS DOLLARS OR OTHER INTERNATIONALCURRENCIES. W W W . T H E F O R E X N I T T Y G R I T T Y. C O M 14. THEN THE INVESTOR BUYS US TREASURIESIF HE NOW HAS DOLLARS OR, PERHAPS,ITALIAN OR GREEK NATIONAL DEBT BONDSIF HE HAS TURNED YEN INTO EUROS. W W W . T H E F O R E X N I T T Y G R I T T Y. C O M 15. ANYONE WHO BOUGHT DOLLARS BEFORETHE RALLY LAST FALL AND THENPURCHASED TREASURY BILLS BEFORERATES FELL DID DOUBLY WELL. W W W . T H E F O R E X N I T T Y G R I T T Y. C O M 16. ON THE OTHER HAND MANY JAPANESEREPATRIATED OFFSHORE ASSETS TO PAYFOR THE DESTRUCTION OF THE WORSTEARTHQUAKE AND TSUNAMI IN THEIRHISTORY. W W W . T H E F O R E X N I T T Y G R I T T Y. C O M 17. THIS YEN REPATRIATION SENT THECURRENCY UP DANGEROUSLY FAST. W W W . T H E F O R E X N I T T Y G R I T T Y. C O M 18. THE RISE IN THE YEN WAS ONLY HALTEDBY THREATS OF THE G7 MINISTERS TOINTERVENE IN STRENGTH. W W W . T H E F O R E X N I T T Y G R I T T Y. C O M 19. ANYONE WHO HELD OFFSHORE ASSETS INA YEN CARRY TRADE DID POORLY AT THATPOINT. W W W . T H E F O R E X N I T T Y G R I T T Y. C O M 20. THE POINT OF THE YEN CARRY TRADE ISTO HAVE OR BORROW ASSETS IN A NATIONWHERE INTEREST RATES ARE LOW,CONVERT TO ANOTHER CURRENCY, ANDINVEST WHERE INTEREST RATES AREHIGH. W W W . T H E F O R E X N I T T Y G R I T T Y. C O M 21. THE POINT IS ALSO THAT A CHANGE INCURRENCY RATES DOES NOT ERASE ALLPROFITS. W W W . T H E F O R E X N I T T Y G R I T T Y. C O M 22. THIS IS THE CONNECTION TO A SO CALLEDEURO CARRY TRADE. W W W . T H E F O R E X N I T T Y G R I T T Y. C O M 23. A CONCERN OF SOME IS THATSTRUGGLING EUROPEAN BANKS THATHAVE RECEIVED 1% INTEREST LOANS MAYBE TEMPTED TO INVEST IN HIGH RISK,POTENTIALLY HIGH RETURN, DEBT. W W W . T H E F O R E X N I T T Y G R I T T Y. C O M 24. WHETHER THIS WOULD BE EUROPEANDEBT OR TO USE FOREIGN CURRENCYTRADING IN ORDER TO PRACTICE A EUROCARRY TRADE DEBT ELSEWHERE IN THEWORLD W W W . T H E F O R E X N I T T Y G R I T T Y. C O M 25. THE POTENTIAL FOR PROFITS COULD BEGREAT, PROVIDING THAT THE GLOBALECONOMIC PICTURE BRIGHTENS. W W W . T H E F O R E X N I T T Y G R I T T Y. C O M 26. ON THE OTHER HAND THE LOANS COULDAMOUNT TO THROWING GOOD MONEYAFTER BAD IF ANYONE TRIES SUCH ANAGGRESSIVE AND RISKY STRATEGY. W W W . T H E F O R E X N I T T Y G R I T T Y. C O M 27. THE GOOD NEWS FOR THOSE FEARFUL OFSUCH A SCENARIO IS THAT OVERNIGHTDEPOSITS AT THE EUROPEAN CENTRALBANK ARE AT AN ALL-TIME HIGH. W W W . T H E F O R E X N I T T Y G R I T T Y. C O M 28. APPARENTLY MANY OF THE EUROPEANBANKS THAT NEEDED BAILOUTS HAVELEARNED THEIR LESSON. W W W . T H E F O R E X N I T T Y G R I T T Y. C O M 29. THEY ARE AVOIDING ANY SEMBLANCE OF AEURO CARRY TRADE AND PUTTING THEIRSHORT TERM MONEY IN THE MOST SECURELOCATION AVAILABLE, EVEN AT LOWINTEREST RATES. W W W . T H E F O R E X N I T T Y G R I T T Y. C O M 30. FOR MORE INSIGHTS AND USEFULINFORMATION REGARDING THE FOREXMARKETS AND FOREIGN CURRENCYTRADING, VISITWWW.THEFOREXNITTYGRITTY.COM.

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