Bank Nationalization Fears To Hurt Euro

The European mini summit in Berlin supplied so headlines about bank nationalization and regulation. This could trigger the EUR/USD to open the forex trading week lower – with a weekend gap.

Bank Nationalization was highly debated in the European mini-summit in Berlin. Although both EU leaders and ECB’s Trichet talked against nationalization, this issue is on the table:

It quoted Trichet as saying ‘the classic economic models and theories cannot be applied, and future development cannot be foreseen’ in the current crisis, which complicated restoration of trust in free-market mechanisms.

Source: Forbes.

But European leaders, preparing for the G-20 summit in April, were in favor of more regulation:

“All financial markets, products and their participants — including hedge funds and other private investor groups which have the potential for systematic risk — must be subject to appropriate supervision or regulation,” the heads of government and state including German Chancellor  Angela Merkel, U.K. Prime MinisterGordon Brown  and French President  Nicolas Sarkozy  said in a joint statement after talks in Berlin today.

Source: Bloomberg.

And how would all these news from Berlin impact the Euro?  

Fears of bank nationalization beat the dollar on Friday. Kathy Lien also talks about this issue, and also reminds us that the nationalization of Northern Rock by the British government hurt the pound on February 2008.

Last week, the Euro lost ground against the dollar throughout the week, but erased everything on Friday afternoon, as other currencies did against the dollar on fears of bank nationalization. EUR/USD is at 1.2820 at the weekend.

So, after understanding that the nationalization of banks (or just the fear) hurts currencies, we can expect the Euro to start the weekend.

I’ll follow and see if my forecast of a weekend gap in the EUR/USD will really happen, as trade resumes in a few hours in the Forex market.