Euro Falls as French Economy Halts

The euro fell against major currencies on Friday as the French economic growth halts. Presently, the euro trades around $1.4184 against the U.S. dollar. At the same time, the European currency fell below the ¥109 mark against the Japanese yen. At the moment, the euro stands around ¥108.93, or 0.44% below its previous close. The euro was hit as France's economy grinds to a halt. According to government data, the French economy stagnated in the June quarter, when most analysts expected it to grow by 0.3%. The second quarter figure represents a big fall from the 0.9% increase in the first quarter. The latest data will most likely add to the pressure on President Sarkozy to implement long overdue reforms. However, the next presidential election is just around the corner, so it remains to be seen how many unpopular moves is Sarkozy prepared to make. France, the Eurozone's second largest economy, has been perceived as a member of the Eurozone center, where debt levels are sustainable and economic recovery is strong. However, analysts and traders are reevaluating France's position. Rumors are starting to spread that France might be the next developed nation to lose its triple-A rating as traders become increasingly edgy by France's primary budget deficit. At the same time, France's banking system is under fire as French banks start to collect their losses on the Greek debt. Deterioration in fiscal and economic position of France only contributed to market uncertainties as markets have been going up and down in recent sessions. To limit the impact of nervy traders, some countries have implemented a ban on short selling. Some analysts argue that France, Italy, Spain and Belgium should concentrate on trying to fix the root causes of current volatility, instead of just trying to minimize the negative impact. The second Greek bailout was supposed to prevent contagion to other countries. A downgrade of France's credit rating would be the ultimate proof of failure of the European plan to save Greece and the Eurozone. It seems the number of healthy economies in the Eurozone is decreasing, putting ever more pressure on Germany to bare most of the costs. However, the public sentiment in Germany is strongly against new bailouts. Chancellor Merkel is also about to face national elections soon. Her party suffered many defeats in local elections, also due to the unpopularity of her willingness to bail out other Eurozone members. It remains to be seen if Chancellor Merkel will put the success of the Eurozone ahead of her chances for reelection. ACTION ITEMS:

Bullish:
Traders who believe that Thursday's recovery of leading stock exchange indexes is a sign that market fears are easing, which should help the Eurozone sort out its debt problems, might want to consider the following trades:

• WisdomTree Dreyfus Euro Fund EU is a long play on the euro. EU may rise if the euro appreciates.

• ProShares Ultra Euro ETF ULE is another long play on the euro. However, ULE should rise more than EU if the euro appreciates.

Bearish:
Traders who believe that problems in France will push the Eurozone over the edge may consider an alternate positions:

• ETFS Short Euro Long US Dollar ETC (Sterling) ETF (SEUP) is a short play on the euro. SEUP may rise if the euro depreciates.

• ProShares UltraShort Euro ETF EUO is another short play on the euro. However, EUO should rise more than SEUP if the euro depreciates.

Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.