The Euro has broken 1.39 and will be on its way to test 1.40. Economic data continues to surprise to the upside with Eurozone industrial production increasing a whopping 0.6 percent in the month of July.
Labor costs also increased from an upwardly revised 2.3 percent to 2.5 percent in the second quarter. It seems that the strength of the Euro has had a much more muted affect on exporters than in the past. Perhaps they learned from their mistakes and have hedged far more aggressively than they did in 2005. The German Chambers of Industry and Commerce said that the US subprime crisis has had little impact on the economy and the strength of the Euro is not a problem for German exporters. The French on the other hand are complaining that the Euro is weighing on growth. Meanwhile, the Swiss National Bank will be announcing their monetary policy decision tomorrow morning. The market is actually expecting an interest rate hike from the SNB. We think there is a strong chance that the SNB will hold given the recent risks in the global markets.
Written by Kathy Lien, Chief Currency Strategist of DailyFX.com