Another Contagious Day, Another Euro Collapse

A big load of bad news came out of Europe today, adding to the Euro’s fall. Here’s a roundup of bad news in 5 countries. EUR/USD already dipped under 1.30. Where will it stop.

Portugal – the next domino: The talks about Portugal needing urgent help intensified. Willem Buiter, Citigroup Inc.’s chief economist,  says that we’re only at the tip of the iceberg:

 

“Despite the recent drama, we believe we have only seen the opening act, with the rest of the plot still evolving,” Buiter wrote. “Accessing external sources of funds will not mark the end of Ireland’s troubles. The reason is that, in our view, the consolidated Irish sovereign and Irish domestic financial system is de facto insolvent.” This means “either the unsecured non-guaranteed creditors of the banks, and/or the creditors of the sovereign may eventually have to accept a restructuring.”

Spain: Spanish bond yields made another jump, with ten-year note yield reaching 5.65% before relaxing.  Spanish banks might face a credit crunch quite soon. Bloomberg reports that as the yield rises on Spanish government bonds, it will be very hard for Spanish banks to raise funds as they need to pay back money at the beginning of 2011.

Italy: Italian yields reached 4.50%. Italy is the third largest economy in the Euro-zone. The government, led by Silvio Berlusconi has a big deficit.

France: Europe’s second largest economy was rumored that it will get a credit downgrade. This rumor is now denied by French officials.

Germany: German bunds aren’t immune – read  here.

All this sent the Euro tumbling down, even temporarily dipping under 1.30. See technical levels in the  Euro dollar forecast.

Update 14:45 GMT: EUR/USD is under 1.30 once again. 1.2920 next target.