As September was one of the best ever for the U.S. dollar, the situation has changed dramatically in October, when the U.S. currency posted the biggest decline in 12 years. Meanwhile, the monthly advance of the stock market indexes is the most consistent in the last 25 years and gold broke the weekly record of the last three years. The promises and then confirmation of a plan to resolve the debt crisis in the euro area has stimulated speculative interest in financial markets. Under these circumstances, the dollar, the cheapest of the major currencies, recorded a monthly decline of 5.2%, preceded by a historical appreciation of 5.8%. Stock exchanges have taken advantage of cheap capital and investors’ risk appetite, as the indexes gained about 15% in one month.
Despite the overflowing optimism, the specialists are reluctant to the enthusiasm of the markets and the efficiency of the plan proposed by the European officials. One of the contestants, George Soros, the most famous currency speculator, believes that the agreement in Brussels is “too little and too late in the context of the current crisis. Investors felt a release because something happened, but the effect will last from one day to maximum 3 months”.
Analysts quoted by British newspaper The Telegraph believed that a solution needed to be more transparent, with Greece and Portugal out of Euro area, even if it would have created panic in financial markets for several months and ” in the current financial conditions fear of a big financial earthquake still persists in the region. The euro area needs strengthening, and banks would be forced to announce losses. Instead, we get only a more complex version of the same alleged non-extended solutions. The plan will fail in two weeks”. The most bitter experts considers that “democracy is dead” in the euro area with the proposed plan.
The collapse of the stock markets will follow
Admiral Markets analysts believe that enthusiasm will diminish when investors will analyze the impact of long-term rather than short-term. Markets are exhausted and an outpouring of trends is imminent. A decline of a magnitude similar to the one in early August is very likely. Recent rise in international exchanges is the last before a collapse of 25-30%. According to estimates, the euro currency will be the most affected and the main beneficiary of the capital flow panic will be the dollar that will quickly recover losses.