The most recent European Central Bank loans to faltering European banks met mixed reviews. The first reaction seems to have been one of relief. It seemed that the EU had finally gotten its act together. At a recent Paris summit European leaders agreed to amend their treaty to bring about closer fiscal integration among the members using the Euro as their currency. They also agreed to give the European Central Bank a stronger hand in bailing out ailing banks and faltering governments. The first European Central Bank loans amounted to $639 Billion (in Euros). It was to prop up ailing European banks. The mixed market reaction was typical of the up and down sentiment that has plagued the Euro and European stocks for the last couple of years. The market seems to overreact to both good and bad news, creating a very chaotic market. This has been a difficult market for stock investors but often a profitable market for stock traders. A common stock trading strategy in recent months has been options trading because of the ability of traders to limit risk and leverage their investment capital.
The ability to generate European Central Bank loans without excessive need to consult the cumbersome EU bureaucracy is seen as a positive by many. Markets are not looking for all of the EU debt issues to be resolved but traders and investors are waiting to see a clear direction. Lacking a clear direction, traders have been limited to using very short term technical analysis in order to eek profits from market reaction to various pronouncements by EU officials. A perceived resolution to the EU sovereign debt dilemma would likely touch off a market rally, both in the EU and in markets throughout the world. Chinese factory production is off while new housing starts are up in the USA. These are mixed signals and the market is waiting for a clear direction. Although traders can make profits from short term market reactions they could find much more profit from successfully anticipating a substantial stock surge.
Trading Euro Zone stocks might be especially profitable if the EU is seen as getting its act together. Trading the Euro could be profitable as well if a resolution to the debt crisis drives the European Union currency upwards. In trading the EURO traders need to follow economic data and economic policy of the EU and of the nation against whose currency they trade the Euro. In trading Euro Zone stocks traders need to look at whether the company primarily does business in Europe or does business worldwide. A thoroughly European business would likely prosper in an EU recovery. A multinational located in Europe could suffer from a higher Euro as their exports would be priced higher abroad. As always traders are strongly advised to use both fundamental and technical analysis in trading stocks or currencies. Often times successful traders scout out stocks with trading potential but only trade them when market conditions are conducive to a sufficient likelihood of profits.
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