German Trade Ban Causes Euro To Fall

Posted May 19, 2010

During the currency trading session on Tuesday, the euro once again reached new lows. Germany announced a trade ban on certain types of investments, which worried investors.


The German Trade Ban

The euro was affected most during the trading session on Tuesday by the newly announced German trade ban. The country announced that it would ban some types of speculative investments. Investors saw this move by the company as another sign of the euro zone's flailing response to the financial difficulties of the region. The global financial markets took the news poorly and it is likely that this will continue to happen going forward.

The Germany trade ban will place limits on the options that investors have when looking to express a negative view on the euro zone. This further means that investors will be unable to short German banks, insurance or sovereign debt against default of the debt. This is likely to lead more investors to see the euro as not worthy of investing.

Even though the move is seen as mostly symbolic, what it means to investors is incredibly worrisome. Naked short selling, as this process is called, and trading of insurance on the sovereign debt does not take place in Germany, where such regulations are being put into place. Rather, it occurs in London and the ban would not affect it.

Germany also announced a tax on the financial market to contribute to the costs of the euro zone debt crisis.

The Euro

The concern for the euro heightened during the trade session today. The euro fell to four year lows during the trading session. Investors are struggling to find alternatives to trade as the euro zone is plagued with numerous concerns. The euro fell 1.5 percent against the US dollar during the day. It fell as much as 1.56 percent against the yen as investors ran scared to these safer currencies. Some believe that this new concern could open the door for an unlimited euro fall in the coming days or weeks.

Investors believe that the euro falling below US $1.22 is likely and that there is little to stop it from falling to as low as US $1.18 during the next weeks.

By the Numbers

During the trading session on Tuesday, the euro moved from US $1.2392 as of late Monday to US $1.2209. The euro moved from Y 114.33 to Y 112.75 during the day. The US dollar moved from Y 92.50 to Y 92.34. The US dollar moved from CHF 1.1309 to CHF 1.1470. The UK pound moved from US $1.4470 to US $1.4328 during the trading session. The ICE Dollar Index moved the US dollar from 86.149 to 87.089, a significant jump that pushed the index to its highest level since March of 2009. At that time, investors turned to the US dollar for safety.

Canadian Dollar

The Canadian dollar rose and fell throughout the trading session on Tuesday. The volatility during the trading session on Tuesday is what fueled the movements. After the trading session, the Canadian dollar was just about the same as it was the day before.