Euro Plunges. Should You Go Long?

Friday the thirteenth lived up to its ominous reputation as far as the Euro is concerned. The common currency of a union long haunted by financial inviability hit lows not seen in 17 months today driven by S&P sovereign downgrade rumors and halted talks on Greek debt. To a lesser extent, disappointing results from JP Morgan (NYSE: JPM) did not help matters, sending a chill on health concerns for the worldwide financial sector.

Rumors coming from high up among EU officials pointed to multiple EU countries receiving downgrades in the coming days. Fresh off of concerns of shrinking GDP growth, Germany was soon cleared by Reuters of having its AAA rating in jeopardy for now. Instead, it was France, the union's second largest economy that soon emerged as the most immediate candidate to drop an A from its rating. In fact, as headlines crassly crossed the wires today, France's rating was threatened with as many as two notches from the S&P, although at the time of this writing, a downgrade of a single notch is more likely.

France is not the only country threatened with a downgrade, nor is Germany completely out of the woods beyond this weekend. The Standard&Poor is sticking to its warning back in December when it put as many as 15 countries on notice of downgrades. Possible names bent as candidates for cuts include Austria (one notch); Italy, Spain and Portugal (two notches) as well as Slovakia, which currently is the poorest country to carry an A-rating on its debt. A rating announcement by the S&P is set for 3pm EST.

The Euro had just looked as it it was going to receive a breather the day before with the ECB keeping rates flat and successful Spanish (and, earlier today, Italian) bond auctions. Instead, the barrage on S&P downgrades was assisted by similarly unsettling news that Greece and its private bondholders were having trouble agreeing to an orderly and voluntary default.

As a Greek default has become all-but-imminent, a voluntary agreement between parties would spare the trigger of insurance payout on credit default insurance bought against the eventuality that now becomes reality. Bond holders are so far reluctant on taking the proposed swap for longer maturities and lower interest rates that would bring the Greek sovereign debt at more sustainable levels. The holdup is delaying the next contingent of funds Greeks need from the Union to stay afloat.

The Euro did not find any reprieve on our side of the Atlantic, either. As JPM opened the reporting f season for financials, it painted a somber mood that had investors running to safe havens such as the US dollar--which further pummels an already struggling Euro. The largest of US banks in terms of assets, JPM slid 23 percent on declining trade revenue and investment-banking fees.

Is Europe any less well off than yesterday (or 2011, for that matter)? Who knows! A double-A-plus-rated France is still on par with the United States after all, and markets have a way of adjusting to bad news as tripple-A ratings slowly become a thing of the past. One thing is for sure, however. The adjustment of expectations has to take place everywhere. That includes Greek bond holders, and even the ordinary investor that could be more understanding of results that do not always point up. Then again, that would amount to asking the market to something that it is not: rational.