Brave New World

Euro to remain vulnerable 09/03/2009

The EUR is at a technical and fundamental crossroads. 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. The key to future direction will be in fundamentals. The German government has announced a EUR 145bn liquidity fund to help large domestic firms. However, the same level of commitment has yet to be shown to resolving the macroeconomic stresses witnessed in large parts of the European Union. Hungary’s request for a EUR 180bn bailout was rejected by the EU last weekend. At least initially, German Finance Minister Steinbruek rejected any calls to rescue Austria should the Eastern European debt crisis blow-up, given its hue exposure to the region. What to do about the hitherto free wheeling and now withering Spanish and Irish economies has not been addressed. So long as data remains weak, credit spreads widen and- in the case of Eastern Europe- currencies depreciate against the single currency, a lack of concrete mechanism and Europe wide policies will continue to weigh on the EUR ahead of the G20 summit. A failure after that key meeting in a month’s time could well lead to a run on the currency. 

Key Events this week: Monday- Euro-area finance ministers meeting, French business confidence. Tuesday- French industrial production, French trade, German consumer prices, German trade and the German current account. Wednesday- German producer prices and factory orders. Thursday– Eurozone producer prices, French employment, French consumer prices and German industrial production. Friday- Eurozone retail sales and German wholesale prices.