Ooomph! The euro received a roundhouse kick from its major counterparts yesterday after weak economic data, political scuffles, and contagion concerns hit the euro region. EUR/USD even dropped to an intraday low near 1.3100 during the U.S. session! What the heck happened?
If you answered political problems in the region, then you already score one for three. Apparently, investors were bothered when Dutch Prime Minister Mark Rutte and his Cabinet resigned after failing to reach an agreement on austerity over the weekend. You see, credit rating agencies have been knocking on Netherland’s doors for stricter austerity measures.If situations get worse over the next couple of days, then the euro region might lose another AAA-rated economy!
Of course, it also doesn’t help that France’s Sarkozy lost the first round of elections to his rival, Francois Hollande. Hollande is a known advocate for economic growth over austerity measures, so he might shake the euro region’s plans up if he wins the elections.
Another reason why the euro bears sold the currency like there’s no tomorrow is that the economic reports released yesterday missed investors’ expectations. France, Germany, and the euro zone all released their manufacturing and services PMI| numbers. Aside from France’s manufacturing and Germany’s services data, ALL reports printed lower than their previous figures. In fact, Germany’s manufacturing report even fell to its lowest level in 33 months! Yikes!
It also doesn’t help growth concerns in the region when 10-year Spanish bond yields inched closer to the important 6% mark. The yields reached 5.945% yesterday, which fueled concerns that Spain might be the next Greece. Remember, 10-year yields were at around 7% when the other major euro economies asked for bailouts!
Will the euro bulls snatch back some pips today? Only the industrial new orders report at 10:00 am GMT and the Belgium NBB business climate report at 2:00 pm GMT are due for today, so make sure you keep an eye on any political/economic report that might influence risk sentiment!