The US Dollar will likely remain the king of the fiat currencies as long as the European sovereign debt crisis continues.  Last Friday the Euro saw its 17 month low and closed at a cost of USD $1.2624 per Euro dollar, well below the psychological $1.3 safety net conceived by investors.  Such low numbers arrived in wake of the ratings agency Standard & Poors downgrading several European nations credit ratings.  France and Austria lost their coveted AAA status while Spain was downgraded to AA, Italy became a BBB+ and Portugal received a BBB.   Germany is the last major Eurozone country to still retain its AAA status after continued S&P downgrade rampages, and one wonders how the 4th largest economy in the world can continue to prop up the region.

The plot thickens even further with talks about a possible Greece default on or around the 20th of March when Greece runs out of money to meet its obligations.  Greece has been our long lost friend over the past few months after banks were forced by Team Merkozy to take a 50% haircut on bond holdings.  Now Greece is trying to manhandle private investors to write down even more debt as losses, it seems that no matter how much hair Greece needs to cut, it is not growing back fast enough.  Talks regarding private investors and debt swaps have stalled, and to make matters worse, Germany today declined a deal to increase the Eurozones emergency bailout funds.  The pressure is on, and nobody likes it.

US Dollar and Euro ETFs have been reacting to the current political and financial crisis in kind, as Euro ETFs have taken and continue to take the plunge to rock bottom, while US Dollar ETFs have experienced meteoric growth.  The CurrencyShares Euro Trust ETF (NYSEARCA:FXE) dropped nearly 1.12% on last Fridays S&P rampage; while the PowerShares DB US Dollar Index Bullish Fund increased nearly 1% last Friday.  Last Friday also was a good day to own the PowerShares DB 3x Long US Dollar Index Futures ETN (NYSEARCA:UUPT) which registered a 2.38% gain.

Other Euro ETFS suffered last Friday as well after the S&P downgrade rampage, especially the iShares MSCI France Index ETF (NYSEARCA:EWQ) which registered an over 2% drop, and the iShares MSCI Austria Investable Market ETF (NYSEARCA:EWO) which dropped 1.55%.  Both of these countries were stripped of their AAA status last week and NYSEARCA:EWQ and NYSEARCA:EWO track these two countries and responded accordingly.

Bottom Line: The US Dollar, and in particular US Dollar ETFs such as NSYEARCA:UUP and NYSEARCA:UUPT are likely to stay in control over the next few months so long as the Eurozone contends with the likes of Greece and the S&P downgrading rampages.  Naturally, so long as the European financial crisis continues, Euro ETFS such as NYSEARCA:FXE and country specific ETFs such as NYSEARCA:EWQ and NYSEARCA:EWO are likely to experience negative returns until normalcy resides.

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