PIIGS- dragging down the EURO

The hope engendered by the proposed EU & IMF plan to rescue Greece & other PIIGS nations has since faded. This is clearly reflected by the sharp plunge in the Euro (see Chart 1). The Euro may find good support at the horizontal line of 1.24-1.25 (the low recorded in October- November 2008 & March-April 2009). Conversely, the USD index has shot up (see Chart 2). It may test the highs of 88-90 recorded in October- November 2008 & March 2009.


Chart 1: EURO's daily chart as at May 14, 2010 (Source: Stockcharts.com)


Chart 2: USD's daily chart as at May 14, 2010 (Source: Stockcharts.com)

Another indicator of the flight to safety is the sharp rise in the price of gold. We have seen that in October 2008 to March 2009, and we are seeing that again since February this year (see Chart 3 below). Last week, gold price has surpassed the high of USD39000 per kg recorded in November 2009. Until a more workable or pragmatic solution is found to the problem of high government debts amongst developed nations in general and the PIIGS nations in particular, the financial markets will continue to be in bearish mode. For more on the problem of high debt among developed nation, go here. For more on the PIIGS nations' indebtedness, go here.


Chart 3: Gold's 5-year weekly chart as at May 14, 2010 (courtesy of Bullionvault.com)