The Euro has always had a marginal group of naysayers; there were always those who insisted that a common currency didn’t make sense for a region as diverse as the EU. As a result of the credit crisis, a bevy of critics have come out of the woodwork and declared that the Euro will not survive its first official crisis. Are they right?

Today, we bring you an interview with Zachary Storella of Counting Pips. He is a self-professed “independent forex trader and blogger.”

Forex Blog: CountingPips purports to offer investors “Forex Trading and Currency Information,” so I would would like to begin by asking you to outline what you perceive to be the most important themes at this stage of the economic downturn, especially as they bear on forex markets?

With this week slow for news and other economic developments, some forex traders are taking a step back to look at the long-term picture. The US Dollar, in particular has come into focus, because of the uncertain consequences of its current economic policy and the related talk of central bank diversification away from the Dollar. “The United States’ expansionist fiscal and monetary policies, which are raising fears of inflation down the road that could erode the value of the dollar, is surely driving diversification out of dollar-denominated asset…The dollar has weakened whenever talk about an alternative reserve currency makes the headlines.”

Pretty much every brochure advertising forex trading highlights the fact there is no such a thing as a bear market in forex. Stocks, bonds, and commodities can all lose value simultaneously (as happened when Lehman Brothers declared bankruptcy in October 2008) but it’s impossible for all currencies to decline simultaneously. A bear market in the Euro might be offset by a bull market in the Dollar; or Swiss Franc; or Brazilian Real. Regardless, you don’t have to search far to find currencies that are outperforming, whereas a stock picker would certainly have his work cut out for him during an economic recession.

What’s wrong with a little optimism? Well, nothing, in theory. In practice, however, unbridled investor optimism usually spells disaster. Consider that emerging market stocks (based on the MSCI emerging-markets index) now trade for 15x-earnings, the highest level since December 2007. Does anyone remember what happened next? The index plummeted 22% in a matter of months.

In my experience, currency markets (and most other securities) markets tend to be governed by trends. There are short-term trends, long-term trends, and medium-term trends. Granted, this is an oversimplification, but generally speaking, if you were to chart a given currency pair, you could characterize its fluctuations in accordance with this paradigm.

The last week brought a few more developments in China’s quest to turn the Yuan into a viable reserve currency. Don’t get me wrong - I used the term “inches” in the title of this post for a reason - the Yuan will not supplant the Dollar anytime soon, if ever. Still, China deserves credit for their resolve on forcing the issue, as well as for providing an alternative to the Dollar monopoly.

On June 1, the Forex Blog reported that Brazil is considering a forex tax on capital inflows as a way of discourage the inflow of speculative capital that is causing the Real to appreciate. It turns out that Brazil is not alone; England and France, among others, are also mulling taxes on forex transactions. Their goal is not necessarily to discourage capital inflows, but rather to raise money to fund projects that would otherwise not be viable under current budgetary conditions.