European Economic Crisis Continues As Reality Diminishes Market Optimism

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(ES) Spain Econ Min de Guindos: Reiterates view that Q2 GDP contracted slightly more than -0.3% in Q1.

(FR) France Fin Min Moscovici: To lower 2013 GDP target to 1.0-1.3% range vs 1.7% prior target; Sees 2012 GDP at 0.4% or less vs 0.5% prior target.

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(EU) Finland Govt: Both Finland and Netherlands plan to block ESM bond purchases in the secondary market- Netherlands Finance Ministry: To decide on ESM bond purchases on a case-by-case basis.

(DE) German Government spokesperson: EU Council did not create a new instrument to save banks directly; wrong to say that there will not be conditionality on aid.

How to interpret these headlines?

Market started out today positively with momentum from last Friday’s EU Summit on the surprise agreement of using ESM to recapitalize banks directly, which effectively limited the effects of any potential contagion fear in the future, thus brought demand back to the Euro… However, it is obvious that the overall market ignored Germany’s warning on the conditionality of the agreement on Friday due to the initial adrenaline rush, but after a weekend of cool down, today’s objection from Finland and the Netherlands carried more weight and reminded the market that the ESM bond purchases might not be as straight forward as it sounded, especially now with the Netherlands and Germany putting road blocks along the way, reminding the market that the European Economic Crisis is far from over…

Of course, the comments out of Spain and France didn’t help much either, with Spain once again reiterating Q2 GDP contraction worse than 0.3% and France lowering GDP target for both 2012 and 2013 below previous targets.  EURO seems to be facing an upward hill battle moving forward, and let’s not forget the potential for ECB to cut rates beyond the 1.00% market this week, EUR is definitely not looking too good for the short-term.

However, that being said, I believe EURUSD could experience ‘some’ consolidation, but the road-map provided by the EU Summit last week is extremely positive, and I believe it has changed market perception for the EURO for the long-term already…  Considering the fundamental outlook of U.S. with today’s Manufacturing PMI below 50 and the fact that NFP is scheduled for Friday, I believe EUR will remain resilient and has a potential for rebound back towards the 1.3000 level, should the employment condition worsens in the U.S.  In conclusion, I would be looking to take advantage of these consolidations and BUY EUR at the low.

 

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About Henry Liu

My name is Henry Liu and I am a Forex Trader and Mentor. I help traders achieve consistent income trading Forex while spending less time trading. My focus in trading is a combination of Fundamental Analysis, Technical Analysis, and Market Sentiment. Far too many retail Forex traders concentrate on just one aspect of trading, technical analysis, and ignore everything else; it is my goal (and vision) to educate every trader on how to take advantage of news trading and become more balanced traders.

You can find more information about me on my Google Profile.

Comments

  1. Henry,……. 1,24000 it’s were we are now….. it’s enought low???

    …..and after see todays data do you still think eur will go up?

    NFP tomorrow could be better then you think….

  2. rarearth says:

    Pls henry at what price are you looking to buy eurusd?

  3. Henry I always read your comments that gives me more clear ways.

  4. Hi Henry.

    Looking from a technical traders view the euro is due to go short Looking at support/resistance
    So combine the fundamental+technical = short
    my opinion

    • Johan I am not saying that I am right, but the only reason that EURUSD dropped from 1.3200 was because of the Grexit potential, and that issue has been put to rest, at least temporarily. As far as controlling the contagion fear, I believe EU Summit surprised the market and I believe the overall sentiment for the EURO is positive… Considering the fact that EURUSD has dropped over 1000 pips in the last few months, I believe a rebound is due and without any more news catalysts to drive EURO lower, EURUSD could go back to the 1.30000…

  5. SWISS CHF says:

    lets buy eur

  6. Hi Henri,
    I really do not share your optimism on the Euro, nor short nor long term. However the markets perceive the news always differently from the fundamentals, so are the fundamentals right or are the markets right?
    The introduction of the Euro was flawed and now some incompetent politicians are trying to mend what is
    impossible to mend.

    • As traders we do not care what is right or wrong, or the principles behind the system. We care about how the market perceives the currency, and right now, I believe the immediate danger to the EURO is gone, and the focus will be on USD with NFP on Friday, which in my opinion is likely to add momentum to EUR.

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