The single currency has risen from $1.1923 against the US dollar at the start of June to hit a 5 month high today at $1.3463.
The overwhelming feeling in the market is that these gains are unsustainable amid concern that nations on the region’s periphery will default on their debts despite their surprising ability to raise funds at recent bond auctions.
The euro’s recent rally over the past few days has pushed it back into overvalued territory against a backdrop of deteriorating fundamentals. With Ireland’s GDP shrinking by 1.2% in Q2 and bond rates moving towards the ever important double digit range, a default from a PIIGS nation remains a distinct possibility. Germany cannot support a whole continent forever. Europe’s only saving grace is that each country’s government has implemented austerity measures to try and rectify the situation; their only hope is that with a tough Q4 coming up globally, everybody else has a tougher time than them.
Keen readers will remember that yesterday, at an FX trends seminar the underlying trend for Q4, potentially into next year, is Swissie strength. You will see today that the Swiss franc is at a two and a half year high against the greenback having smashed through several key resistance levels to be hunting down parity. Another currency approaching a level playing field with the US dollar is the Aussie dollar. With continuing strong growth from the tiger nations and the commodity boom, the Aussie is going from strength to strength.
Have a good weekend
Tom Hampton
Analyst Caxton FX
