Euro Slips Back Towards 1.40

The Euro is slipping back towards 1.40 on the back of a smaller than expected rise in German factory orders as well as mixed commentary from ECB and IMF officials.

Despite the German Economics Minister?s comment that he is not losing sleep over the current level of the Euro this morning, recent economic data indicates that as much as some officials may try to deny it, the strength of the currency is indeed having an impact on the economy. Factory orders rebounded only 1.2 percent, following the biggest drop in at least 16 years. Although ECB officials seem to agree that price stability is subject to upside risks, ECB member Bini-Smaghi indicated today that if Europe wanted to act to weaken the strong Euro, they did not need to wait for the G7 meeting later this month. Is he trying to say that the ECB may physically intervene in the Euro? Probably not because the currency is already falling off its highs and Germany, the Eurozone?s largest member remains comfortable with the current level of the Euro. Also, the ECB would far sooner verbally intervene in the before physically intervening. Meanwhile IMF Rato?s comment that the dollar is undervalued is also pressuring the EUR/USD. Tomorrow we have more comments from ECB officials as well as the German trade balance and industrial production. Both numbers are expected to be softer given the weakness in factory orders and the recent strength of the Euro.

[B]Written By Kathy Lien, Chief Currency Strategist[/B]