Trading the Greek Financial News

04/20/2010 12:01 am EST

Focus: ETFS

Greece is back in the news as the European Union bailout apparently is in doubt and the Mediterranean playground struggles to refinance its debt.

Today, Greece will attempt to refinance an EUR 8 billion bond that’s coming due, followed by another EUR 8.7 billion due on May 19. With yields at very high levels, the Greek government is already heading to the European Union and IMF for help, but the wrinkle in the drama is that the “bailout” announced last weekend by the European Union may be subject to approval by various countries’ parliaments, and legal challenges against the whole thing are underway in Germany and Switzerland.

The euro continues to be under pressure as traders worry about the ability of the union to carry this off, as well as the possibility that this “contagion” could spread to Portugal and Spain in coming days.

Greece’s recent short-term auction of six- and 12-month Treasury bills sold at the exorbitant rates of 4+%, and the long-term spreads are 6%-7% or higher, which it’s unlikely to be able to pay. Germany is trying to figure out whether it can offer the aid without a parliamentary vote while a group of professors is launching a lawsuit to stop the bailout because they believe it runs counter to the EU charter.

So depending upon your outlook for the outcome of the Greek drama/comedy/tragedy, you can go long or short the euro to participate in this unfolding drama.

If you believe that the crisis will be solved, and Greece, Portugal, and Spain will emerge from this without further problems, that would be bullish for the euro and you could consider the Rydex Currency Shares Euro Trust (FXE).

Click to Enlarge

In the chart above, you can see how the Greek drama has taken its toll on the euro this year and how just in the last week or so, FXE has rallied in response to the European Union bailout.

If the bailouts are successful, one could make a good case for a strengthening of the euro and the European stock markets.

However, if the bailouts fail, aren’t implemented in time to prevent a default by Greece, or if more money is required than is currently believed, that would very likely be negative for the euro.

In that case, a short position in the euro by way of an inverse ETF could be considered. ProShares offers an ultra-short euro ETF that tracks at twice the average movement of the underlying index.

Click to Enlarge

In the chart above, you can see how EUO has prospered as the euro has suffered.  As always, when using leveraged ETFs, you must understand how they work and what the risks are by making a careful study of the prospectus and literature available on inverse exchange traded funds.

So, however the Greek drama/comedy/ tragedy plays out, there will be winners and losers, and although this is a global drama, individual investors can now participate through the flexibility and versatility of exchange traded funds.

By John Nyardi of

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