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Same Event, Different Actions

It’s no secret that the banks all throughout Europe are having difficulties. And it’s also not a secret that elections all throughout the EU take place next month. There is reliable speculation that governments throughout Europe will be approving a bunch of bank reform laws quickly in order to get them out of the way before the elections take place. Political reasons for this aside, this could have a profound impact upon both the euro’s price in comparison to other major currencies and the prices of stocks of the major European banks.
Taking on the EURO
First, you need to expect the impact to come in two different parts: immediate and long term. The immediate impact will be based upon how the public reacts to these changes, and this will largely be determined by what the media says. It’s called trading the news, but in this case (like many others), the effect will probably not last long. In this instance, the media is saying that the EU is ready to bail out banks without touching public money, and that this will eventually wrestle control of European banks away from national governments and into control of the European Parliament.

The end result will likely be more of the same–at least for now. The new rules will make it easier for failing banks to be closed by the government. In this light, strong banks will get more business–thus boosting stock prices. The weakest banks will, then, likely have a safer way to close. Based upon past performances of publicly traded banks, the big and reliable banks not in need of government help will see an instant jump in prices. The extent of this jump is uncertain, but it really doesn’t matter if you are trading these through binary options. Even a tiny jump up in price can yield big results. That’s the beauty of binaries–even a penny’s worth of movement in the direction you pick can give you around 78 percent in returns in just a few minutes.

Analyzing the short term of the euro itself might be a bit tougher. In theory, it should be better for the euro to get rid of the weak financial institutions more easily. That means, however, that this will be good for the euro over the long term if nothing else changes in the meantime, and that is pretty unlikely. The short term is a completely different story and is a lot harder to predict for this.

In other words, the exact same action will have a predictable outcome for the short term of the major banks and a theoretically predictable for the long term of the European currency. It is tough to comprehend that something like this could happen until you realize that currencies and financial sector stocks are completely different assets. One is domestic in nature and one is international. The domestic is always easier to predict because there are fewer variables to consider. A currency is reliant upon all of the domestic factors, but also the variables that are effecting other currencies, too. So the euro’s price is not independent of just what’s going on in the EU. Currencies come in pairs. So the EUR/USD pair takes into account EU conditions as well as American circumstances, too.

It’s a mixed blessing. Yes, there are more variables, but it also makes it easy to decipher things when one side of things easily outweighs the other. If something detrimental were to happen in the U.S. economy over the next few weeks, your action would be easy to figure out since the rise of the euro would be almost unstoppable. The codependency of currencies, then, is not good or bad, just different in relation to stocks, even when looking at how the same event can impact them.
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