EUR/USD Fundamental Analysis
The Euro found strength from the statement of International Monetary Fund Director Christine Lagarde that troubled economies in the Euro Zone should be given more time to reduce budget deficits. Markets seemed to have disregarded the downgrade by Standard & Poor’s of Spain’s credit rating as Lagarde showed support for both Spain and Greece. With market sentiment likely to shift towards the Euro, bullish trades are expected for the EUR/USD pair in today’s European exchanges.
At the IMF’s annual meeting in Tokyo, Lagarde showed support for Greece and Spain by expressing favor towards giving more time for both countries to narrow their budget deficits, believing that expeditious cutting would cause more danger to the economies. But her statements seemed to be in conflict with that of German Finance Minister Wolfgang Schaeuble, who said that reneging on budget cuts would take a toll on confidence. “It is sometimes better to have a bit more time.” This is what we advocated for Portugal; this is what we advocated for Spain; and this is what we are advocating for Greece," Lagarde said. The Euro Zone likewise received praises from US Treasury Timothy Geithner who said that the Euro region is now in a “much more powerful, promising path.”
Meanwhile, the US dollar is projected to decline versus the single currency on increasing bets that the European debt crisis would ease because of the measures taken by the European leaders. In addition, the better unemployment claims-data which signals an improving US labor market and a recovering US economy, is likely to trigger demand for higher-yielding currencies. Thus, a long position for the EUR/USD pair is recommended in today’s European trading exchanges.
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