Amid controversial forecasts for Europe’s economic future, traders and investors are uncertain about the future of financial markets and the entire global financial system. The stability of the US Dollar and the Euro as the world’s major currencies is questioned. World-famous financiers and economic experts only add fuel to the fire by making controversial statements.
What are the prospects of the common Euro currency? Let’s try to answer this question together…
EU’s Steps To Prevent Eurozone Collapse
Last year’s antic-crisis steps (including a €110bn tranche to Greece, the ESM supported by the IMF and expanded up to €750bn, the ECB’s bond purchases) seem to have failed to prevent the eurozone crisis from escalating. Even though the euro is currently showing some strength, traders and investors express more concerns as there are more reasons to be concerned:
The recent steps were aimed at resolving the liquidity issue. At this point, it is still unclear how the European authorities are going to eliminate the solvency problem. Analysts still expect Greece to default on its debt within a few years.
The PIIGS states have made certain steps aimed at reducing the budget deficit. These steps start causing social protests and will definitely affect the economic growth in those states. Fitch has already cut Spain ’s sovereign rating.
The ECB is not going to easy its monetary policy in the near future.
Some other European economies are trying to defend themselves by means of uncoordinated policies. In particular, Germany has suspended uncovered short sales and is planning to toughen the ban despite the fact that some other eurozone members are against it. The ban resulted in negative reaction in financial markets and undermined the current strengthening of the Euro currency.
Will the repatriation of the Euro save the eurozone?
According to , the forthcoming repatriation of the Euro currency will be one of the key events for financial markets in 2013.
Previously, investors tended to flee the Euro in favor of other major currencies because they were afraid of a possible eurozone collapse. Now investors seem to feel more confident about the eurozone’s prospects and are more willing to risk. The Euro will benefit from that.
The Euro may keep rallying even despite the fact that the EU’s financial authorities say the common currency is still too strong.
At the same time, most Wall-Street experts assume that the current retracement in the market of EURUSD may well continue in the short run. However, it won’t seriously affect the overall bullish bias, i.e. the bearish move won’t turn into a trend reversal.
Westpac experts assume that a decline down to $1.34/$1.33 may be considered as an opportunity to go bullish EURUSD.
The chart below, courtesy of , reflects the current state of affairs in the market of the EURSD futures:
The price has tested 1.3400. There is another major level of support - 1.3355. This is major volume cluster, which started a rally a couple of days ago. Obviously, we will see the price testing this level. The results of the test will determine the mid-term tendency of EURUSD.
