The market is confused about the euro. The ECB and various government officials are saying that they will not bail out the Greek government, if that becomes necessary. It strikes me that this is all about politics. It is not in anybody’s interest for Greece to default on its government debt, so I expect that it would not be allowed to happen. But the relatively new Greek government faces opposition to fiscal responsibility from its riot-prone population and from people within the governing party. In order to prevent a bailout becoming a necessity, the ECB, the Germans and whoever else are making tough noises to strengthen the hand of fiscally-responsible Greeks. This is leading to uncertainty about whether the Greeks would ever be allowed to default on their debt, and is contributing to the fall of the euro.

This is all supportive of my short EUR/USD trade. Because its roots are political, the uncertain situation could endure for some time. I am hoping that a weakening euro will therefore become a decent trend.

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