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Friday, August 10, 2012

Euro faces Dollar hammering

Today the Euro fell again. Some investors sold  the currency as concerns mount about whether  the European Central Bank (ECB) will be able to  stem the debt crisis.As I predicted yesterday, although initial expectations  that the ECB will step in to ease borrowing costs for  Spain and Italy may have assisted the Euro in climbing  to a one month high against the Dollar and rally  against the Yen earlier in the week, this optimism is  starting to fade. The result is that some investors are  starting to book gains.
  The Euro is further weakened by recent poor Euro zone  economic data. Today the German economy ministry has  also said that Germany is expected to face "significant  risk" linked to the Euro zone crisis.
  What is evident to me is that reserve managers are  selling the Euro and will continue pulling funds out  of the region.
  I foresee that in the coming week, when the Euro zone  second quarter gross domestic product data is due for  release, further pressure will be put on the Euro as  expectations are that the regions economy has  contracted. This will pressure the ECB to cut interest  rates.
  What we are seeing right now is the Euro moving through  a corrective phase. In the long term though, I expect  a large decline.
  The Euro was down earlier today by 0.3% to $1.2270,  on track for its first weekly loss in three weeks.
  Earlier, Chinese data was release which has hurt  appetite for riskier assets and currencies. The results  of the data were below forecasts and showed that Exports  grew just 1.0% in July for a year, below market  expectations of an 8.6% rise. Imports grew at 4.7%,  compared to expectations of a 7.2% rise.
  Growth linked currencies such as the Aussie fell on the  news. The Aussie was also pressured earlier after the  Reserve Bank of Australia (RBA) released its quarterly  statement on monetary policy. The RBA upgraded its  2012 outlook for economic growth, however warned that  "a strong currency could constrain expansion more than  in the past".
  The Australian Dollar was down 0.7% at $1.0503.
  What I think we'll see now is that demand for risky  assets will lessen, as investors chose the safety of  the Dollar and the Yen.
  The Dollar was earlier down 0.15% on the day, remaining  range bound in the narrow 77.90 to 78.80 Yen range, at  78.54 Yen.
  I expect that the Dollar could gain against the Yen  as a result of rising U.S. Treasury yields. This could  result in expectations of another round of bond buying  by the Federal Reserve being lowered somewhat.

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