The German FinMin Schaueble has been quiet these last few weeks and there seems to be a sense that Germany is giving in to the inevitable; if you can’t beat them, join them. Even AEP in the UK Telegraph is sensing the same mood swing. The cost of a EUR collapse is simply too huge for Germany to contemplate and whilst they will continue to talk tough so as not to lose too much face, it seems that the EZ and ECB will now do whatever it takes to save the EUR.
This may start this weekend at the G20, with whispers turning into shouts that a template for a banking union will be finalised, which will then be agreed upon by the EU summit 2 weeks thereafter. Banking union will be followed by fiscal union, the only way to save the EUR.
What does this mean for the EUR? Well, the obvious reaction would be to buy it and we could see some crosses like EUR/GBP and even EUR/AUD make some major gains. If the G20 breaks with tradition and actually makes a useful breakthrough, then EUR/USD will probably be trading at 1.28 on the way to 1.30 and the crosses will all be higher.
More medium term it may not look so rosy for the EUR, they will after all only have one way of funding all these great bail-out initiatives and that is by printing Euros in some form or another. The race to the bottom can begin all over again (which partly explains the bullish Gold analysis which I mentioned earlier).
