Sunday, May 9, 2010

S&P 500 and US Dollar: EU Bailout Update


The EU has announced tonight a massive bailout agreement to support the weaker EU countries (notably Greece), the EU financial system, and the Euro in general.  The IMF also approved their portion of the Greece bailout.

The EUR/USD currency cross has stopped descending and USA equities futures are up on this announcement.  Overall, the world markets are reacting favorably.

As already noted by analysts, the EU liquidity crisis has now been resolved but the solvency issue will only be resolved with time through austerity measures which take political will.  So, time will tell about the EU solvency crisis.

While the fear in the global markets should decrease now, this does not resolve the suspicion resulting from the Flash Crash on Thursday nor the distrust and injustice in the USA financial system.  However, the very good quarterly earnings season and positive USA and global economic news should now be more realistically priced in the USA equities markets with a decent rally henceforth.

As a result, we probably are seeing that the bottom is in for the S&P 500, SPX, at least for now and will see a relief rally.  Conversely, the US Dollar is probably topping out at least for the short term.  As I noted in my previous post, earlier today, the technical indicators for both the S&P 500 and US Dollar had been pushed to the extreme by the fear and suspicion that was the prevailing market sentiment.  Hopefully, the fear has subsided, yet the suspicion issue has yet to be resolved.

The major business news websites are reporting the details:



  1. The weekend bailout expectations have worked out with the shorters squeezed out . The message was unequivocal,when in trouble we will drown you with currency.Even the friendly Fed which has bee quantitative easing the problems across the Atlantic away came in with a helping had.The Fed will “provide the European banks” with dollars as needed.The Fed would be providing dollars to the Greek banks in lieu of the junk Greek bonds.

  2. Yes, EU, ECB, IMF, & several central banks, including USA Fed, have launched a massive effort to keep Europe steady. Good point, will be interesting to see how strong USA equities are after the short squeeze has worked itself out. I'm generally bullish on USA equities, btw. USA is also providing good old fashioned taxpayer dollars through the IMF funding of the EU bailout. Estimates were upwards of $10 billion USA has chipped in via IMF.


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