Euro Sees the Biggest Drop in 2 Months

The Euro fell by the largest amount in 2 months, putting an end to the currency pair?s month long uptrend. Sentiment has shifted in the markets and it has done so with little fundamental support. French business confidence remained unchanged in July while Trichet continued to play down the significance of the currency?s ascent. The fact that he only indicated that the recent market correction is healthy suggests that he is not willing to rock the boat days before he goes on his summer holiday. Instead, he has sent the members of his monetary policy committee to do the job.

Yesterday Stark said the strong euro was hurting exporters. Today, Quaden said that the central bank was against abrupt and excessive currency moves. If Trichet were to say the same things, the market?s reaction would be far more severe, but now they have a nice and orderly correction. Tomorrow we have the German IFO survey. The deterioration in Eurozone manufacturing PMI and the drop in the Belgian manufacturing survey suggests that German business sentiment could deteriorate. If that becomes true, the sell-off in the Euro could deepen. A break below 1.3697, which is today?s low, would open the door for a move down to 1.3575.