May 28, 2010
Woah! This caught me by surprise... The euro enjoyed a strong rally yesterday as the latest developments on the euro zone debt situation turned out to be good news. Did you see how the EURUSD jumped from the 1.2200 area to a high of 1.2385?
Remember those speculations about China wanting to dump their Eurobond holdings? Well, China flat-out denied these allegations, easing investors' fears that the euro zone won't be able to survive the debt crisis and allowing the euro to breathe a sign of relief.
Aside from that, it seems that euro zone nations are bent on working on their own budget shortfalls, careful to avoid a repeat of the Greek debt drama. Spain's approval of its 15 billion EUR austerity plan and Italy's 26 billion EUR budget cut program sparked hopes that these nations would be able to trim their deficits soon. Traders found comfort from these news but would this feeling of calm last? I remember my buddy Forex Gump mentioned in his recent article the negative side-effects of austerity programs, which could lead to a drop in employment and slower economic activity down the line. Now that's something to watch out for...
Meanwhile, Germany seems to be doing fine and dandy as its CPI reading for May hit the target. Euro zone's largest economy reported a 0.1% increase in price levels for the month, which was a nice rebound over the 0.1% decline seen in April.
Today, Germany is set to release a report on import prices at 6:00 am GMT. Even though this report is slated to have a mild impact on the euro's movement, it might be helpful to find out if the actual figure meets the consensus of a 1.4% increase. Later on, ECB official Axel Weber is due to deliver a speech at 12:30 pm GMT. Stay tuned for his comments concerning the ongoing debt crisis in the euro zone since these could also have an effect on the euro's action.
"The only cable I watch is the pound baby."