With the markets in turmoil as Greece continues to circle the drain, one can derive both immense aggravation and delicious pleasure from the daily gyrations of the euro. As the Greek government continues to wrestle over the ‘who’ and the ‘how’ of fixing many of the beleaguered nation’s problems, no real action is being taken to actually fix these problems. And, with money in the nation’s coffers which will last only another five weeks, time is running out.

If we rewind the clock a week, a month or even six months, the story hasn’t really changed all that much; Greece is in a dire situation and incredible, coordinated action needs to be taken if the nation is to be turned around from the brink. In line with the relatively unchanged storyline, we maintain our bearish outlook for the euro which we have been holding since the beginning of the year (the author made the U.S. Dollar his ‘Winner of the Year 2011’ in anticipation of a deteriorating euro-zone situation and hopes for a U.S. economic recovery).

We anticipate the hopes of the market that Greece will simply be ejected from, or slink out of, the euro-zone and to that end some players are said to be building significant long euro positions on dips. Not a terrible strategy considering if the weakest member of the currency union is no longer weighing on the currency, an adjustment higher may well be warranted. However, if the market does make such a move we will view this as a formidable selling opportunity. We wish that the woes of the euro region could leave as easily as Greece from the union itself, however, with many other nations saddled with debt and economic growth waning, we believe that there is still more bad news to come. This says nothing of the impact of banks that have to write-off billions of euros for the Greek debt they were holding.

The vultures are certainly circling above the euro region and their hope that Italy will move to centre stage we believe is misplaced. While Italy – along with Spain, Portugal and Ireland – are in trouble, we believe that they have already taken necessary action and implemented the changes needed to avoid the precipice that Greece is about to drop off. Once a period of relative calm is restored with Greece out of the euro and Italy on the bumpy road to recovery, we hope that the EU and ECB will take the necessary measures to avoid a repeat of this mess. This includes the far-reaching, hard-hitting measures that bureaucrats in Brussels have thus far shied away from, measures that are vital to the survival of the euro-zone.

Turning to growth, the euro region is in a dreadful state economically with its driving force – Germany – also staring down the barrel of some nasty looking numbers after awful PMIs and abysmal factory orders last week. The result is that slow, steady, at times uneven growth is something everyone is going to have to get their heads around. While this financial crisis may end up being ‘U’ shaped, the base of the ‘U’ – where we find ourselves now – could span many months or even years. If we shift our focus across the Atlantic the U.S. finds itself in a very similar position, however, we maintain, as we have from the outset of 2011, that the ‘first in first out’ rule still applies and we continue to watch the Fed for intimations of a tighter policy and the end nearing of this financial crisis. While many look to the ECB who have tightened and then loosened again as the benchmark, it is our position that the ECB cannot be trusted as a true gauge – proved in this crisis by their hasty, inflation-driven hikes. This comes in spite of actions last week which certainly reflected that the ECB is tuned in to the markets needs and its cut in rates should certainly help the ailing economy.

To trade all this negative euro sentiment we suggest looking for key positions to enter short Eur/Usd positions and to trade those positions with the correct leverage. One must be prepared for the market to go significantly against you in coming days – due to the irrationality of markets at present – and therefore unleveraged positions are recommended initially.

With the market currently trading in no man’s land we recommend standing aside until lucrative selling levels are met, we outline initially 1.40. Downside targets should be back toward recent lows and 1.3000 in coming weeks with 1.2000 still beckoning to the downside for very aggressive bears in coming months. On the technical front, only a sustained break and close back above the 1.4550 level gives reason for a pause. However, as we mentioned above should Greece leave the euro in coming days or weeks we expect a relief rally which could stretch several hundred points, but we will view this as a formidable selling opportunity ahead of further weakness.

Full Disclosure:The author is short Eur/Usd from 1.3905, he added to the position at 1.4030 and again at 1.4210.

Written by Jonathan Granby

Jonathan Granby is a financial writer and blogger who contributes regularly to DailyFX, Seeking Alpha and is a regional contributor for Aslan Media. Jonathan is a published writer with pieces appearing in leading U.S. journals on the topics of economics and finance. He has previously held positions in financial services and before that was the Freedom Fellow at JIMS, an economic think tank, for three years.

Follow Jonathan on Twitter @JonnyGranby or email directly at This e-mail address is being protected from spambots. You need JavaScript enabled to view it