The euro is at a fundamental and technical cross roads. In price action, the currency has taken to congestion that is on the verge of confirming a major bearish reversals against the US dollar, British pound and Japanese yen. So, what has prevented the market from confirming – or reversing – the next dominant trend? Fundamentals.
[B]Euro On Edge As Eastern European Countries Threaten Renewed Crisis[/B]
[B]Fundamental Outlook for Euro This Week: Bearish[/B]
- The ECB meets market expectations by cutting rates 50 bps; yet warning of further reductions unanticipated
- European Union leaders deny request for a 180 billion aid package for Eastern Europe
- German PM Merkel says $145 billion liquidity fund open to largest firms
The euro is at a fundamental and technical cross roads. In price action, the currency has taken to congestion that is on the verge of confirming a major bearish reversals against the US dollar, British pound and Japanese yen. So, what has prevented the market from confirming – or reversing – the next dominant trend? Fundamentals. This past week, increasingly critical traders (look at the blow to the safe haven status of the yen) looked for tangible evidence that the Euro Zone was truly stronger than its global counterparts. Doubts have lingered and developed for months; but the ECB’s decision to maintain its dovish policy and the growing financial troubles for some members of the Union that have been dubbed the ‘emerging market’ economies of Europe have put the superpower on the same level as the United States and United Kingdom.
Through its troubles are growing, the euro’s primary market driver over coming week will likely be the financial cracks that are developing within the member-state economy. For months, the Euro Zone has been suffering from the effects of the global recession and credit crisis. However, to this point, the contractions in the coalition’s individual economies and the frozen credit markets were tolerable through economic diversification and significant nation-specific bailout efforts. However, the pain is outlasting the government’s efforts; and the fact that this is a patchwork of individual economies is becoming blatantly clear. The true nature of the beast was revealed when Hungary was rejected by European Union leaders for a 180 billion euro bailout for Eastern European economies that were on the verge of collapse. Instead, German Prime Minister Angela Merkel said aid would be by given on a case-by-case basis. Should any of these economies (small or not, Union members or not) fail, it could severely undermine confidence in the entire region. Officials will no doubt act should it be clear that such a failure was imminent; but from a broader perspective, this further highlights the reality that little has been done to stabilize all of Europe. More than likely, for the world’s leaders to be successful in curtailing a deeper recession, there will need to be an effort made on a global scale. This will be the milestone for the G20 meeting on April 2nd; but until then, doubt will always be present.
Looking outside of this long-term and vague market theme, there is little on the fundamental docket that can define a major trend in the euro on its own. However, there is plenty of data that could contribute to general forecast for growth and interest rates. For economic activity, readings on German factory orders and Euro Zone retail spending will start to form expectations for first quarter GDP. For market moving potential, the Sentix investor confidence report won’t likely rouse much in the way of volatility; but it will confirm the rising sense of concern that a group of pessimists do not need to be reminded of. Also, the ECB monthly report for March will establish benchmarks for economic activity and interest rate expectations from policy makers point of view. - JK