Written by Winston Ng

The decline in value of the Euro since the start of 2010 has evoked a range of emotions from glee to despair. The Euro crisis has brought joy to the tourists – families and students on their graduation trips on their way to tour around various cities this June holiday period and of course, the traders that have profited from it. The misery, on the other hand, has largely been felt by politicians from the various European states fighting to restore confidence in the currency with a series of measures to assist Greece, Spain and Portugal with repayment of their debt obligations. Even preparations for the World Cup have seen Germany and England losing their captains to injuries before the kick off! Seriously, how bad can it get in the Eurozone?

Is The Bottom In Sight?

In the uppermost minds of traders and investors that have actively been following the developments of the financial markets, has the Euro reached a bottom? As the European debt crisis will likely delay interest rate rises in the Eurozone, this will force the European Central Bank to hold back plans to tighten their monetary policy. This raises the question of whether the Euro would continue to be the funding currency of choice for the year ahead. As fears of a double dip recession in the global economy rise, for the months ahead, shifting investments into safe haven currencies and gold remains a safer bet. Equities would only take the limelight when economic indicators confirm that the global economy is indeed moving away from a double bottom.

Bottom pickers can take heart from an investment maxim by Sir John Templeton: “To buy when others are despondently selling and to sell when others are greedily buying requires the greatest fortitude and pays the greatest reward.” The key to unlocking your gift from the markets is the intelligent action you take when confronted with excessive despondency and greed. One can only confirm that a new low was indeed the bottom for the market on hindsight. Thus the key is to always take a small position in your investment ideas before rushing in.

Have You Collected Your Gift?

Against this backdrop, what actions have you taken or are taking to profit from this gift from the financial markets? Yes, GIFT from the financial markets. Even if you do not own a Forex trading account, you must have heard some opportunistic friends or even family members consider heading down to the money changer to exchange Singapore dollar for Euros. Other investment savvy friends would have suggested accumulating some blue chip stocks in this correction phase of the stock markets. Unsure about the actions you should undertake? As financial markets slow in activity this June as traders attempt to keep up with World Cup happenings and go on holidays, seize the opportunity to brush up your financial knowledge.

A Game Of Sentiment

Just last year, the Euro reached a high of $1.60 before spectacularly collapsing to $1.19 today when sentiment shifted. Confidence in the financial markets is a chicken and egg thing. If investor confidence returns in the Eurozone, borrowing costs faced by governments would fall. This allows them to rebuild their economies and only with economic growth can the governments afford to repay their debt obligations. You may argue that it’s virtually impossible for the US economy to pay off its debts, however, for the US government to even afford to repay the interest on their debt obligations, the US economy needs to grow and of course government spending reined in. Thus, the astute investor rides on the sentiment engulfing the participants of the financial markets to profit from their investment flows. The astute investor also knows that he should not be the last man standing when this trend is over – he cashes out and shifts his investment strategy with changing sentiment! This way, he profits from both up and down markets. There are always signs to alert the investor to a possible shift in the sentiment of a market. Your level of financial intelligence would determine how well you react to them.

Next up – market participants start to scrutinize US debt obligations and her ability to repay. Enjoy the ride!