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The Euro’s inability to sustain a rally against the U.S. Dollar on the weekend’s shock and awe $1.0 Trillion bailout by the 27 members of the Eurozone strongly suggests that the Euor is much technically weaker than even I expected. In my May 10, 2010 post I said that I believed that the actions being taken by the Eurozone over the weekend would likely slow the rate of descent of the Euro against the Dollar. The Euro was unable to sustain a viable rally against the U.S. Dollar on Monday on the news and on Tuesday fell back and is now within a couple of pennies from fresh 14 month lows. Based on its recent action I now believe that its rate of descent will again intensify and go back to the same trajectory it was on late last week.

The reasons why the Euro can not sustain any momentum are as follows:

· The loan and guaranty package that the ministers agreed is so liberal that it will enable the Eurozone’s weaker countries to not have to take the severe austerity measures that the countries would have been forced to take before $1 Trillion plan was unveiled.

· A big problem with the shock and awe plan is that it called for all of the Eurozone member countries to participate in making the loans on a pro-rata basis. This means that a country such as Spain who accounts for about 12% of the Eurozone’s GDP and who will likely need a handout of a couple of hundred billion Euros would also be called on to provide the funds to bail out other Eurozone countries who are also having financial difficulties.

· The $1.0 Trillion plan does not accomplish much of anything. All it does it heap more debt on top of debt. It also indirectly places the ultimate burden on the full faith and credit of the debt on to its two biggest and most fiscally viable members, Germany and France.

· The soft underbelly of the Eurozone has been exposed and result is that the Euro has forever lost its place as a reserve currency along with the U.S. Dollar.

Given that the Eurozone ministers shot their silver bullet prematurely (I had already said that they should have waited for the Euro to fall to a much lower point before taking such action) I believe that the fate for the Euro to fall to new all time lows against the U.S. Dollar has been sealed.

I also predict that the major U.S. stock indices will soon resume their downward trajectory and that they likely will not bottom until the Euro has bottomed against the U.S. Dollar.