Euro Fundamentals Turning Sour

[DailyFx]

Last Thursday, ECB President Trichet shocked the currency markets by saying that he has no bias about future monetary policy, sending the Euro plunging against the US dollar.



The Euro came under further selling pressure after the German industrial production dropped 2.4 percent in the month of May, which compares to the market’s call for a 0.3 percent rise. The drop comes in sharp contrast with the rebound in the manufacturing PMI report and suggests that the trade numbers on Wednesday could be weak. Cracks in the Eurozone economy are beginning to show and these problems could be exactly what prevented Trichet from being more hawkish. Either way, the ECB is done for now which should limit any gains in the Euro. We still believe that no bias equals no action in the EUR/USD so expect the 1.53 to 1.59 trading range to remain intact for the rest of the summer. Meanwhile the unemployment rate in Switzerland continues to drop. The jobless rate hit 2.3 percent last month, the lowest level in 6 years. This has helped the Swiss Franc hold near its 17 year highs against the Japanese Yen.