Euro: Financial Crisis Furthers Euro Zone Recession Fears

[DailyFx]

Considering the relative strength of the Euro across the market, it seems the currency is finding support from the central bank’s steadfast monetary policy stance and the optimistic outlook on growth and financial conditions.



In fact, today, ECB board member Bonello said that he expected the worst has already passed for the Euro Zone economy and the fourth quarter would see a recovery. This optimism has certainly been absent in data however. Second quarter growth readings reported marked contractions in activity in both the major member economies and in the broader region. The outlook isn’t faring much better. Falling employment and wages is turning into a drop in spending, foreign demand is fading and now business activity is expected to depress growth even further. This morning, the German IFO business sentiment gauge tumbled more than expected. The headline Business Climate reading hit a three year low – not surprising considering the indicator’s trend and the additional weight imposed by the recent financial crisis. Far more concerning from a fundamental perspective though was the drop in the expectations component which hit a new 15 year low. If businesses plan to scale back going forward, the impact on employment and growth will be notable. Looking ahead, traders will be keeping their ears perked for any more ECB comments on the financial crisis and its impact on the Euro Zone; but there is also scheduled event risk to keep the market occupied. The money supply reading for August will give another inflation reading; but the real market mover will be the GfK Consumer Confidence Survey. We have already seen reports on investor and business optimism (both bad); but the consumer is the biggest component of growth, and their sentiment can truly alter growth and the euro.
Related Article: German IFO Disappoints, Euro Holds Steady at 1.46


Check out Daily Fundamentals in its entirety for analysis and outlooks on the US dollar, euro, British pound, Japanese yen, and the commodity dollars.