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Macroeconomic Headwinds for the Euro

In additional to the technical breakdown of the Euro, we are starting to see the  lagging, but broader economic and political impact of a recently higher Euro. 

Co-chief executive officer of Danish bank Saxo Bank A/S, Lars Seier Christensen, highlighted much larger fundamental issues facing the Euro. He noted the ongoing weakness of the Southern European countries and even the larger problem that France will become if their economy continues to sink into a debt crisis. He believes Germany cannot possibly and furthermore would not stand for a bailout of the magnitude that would be required to stabilize France.

From Bloomberg:

"[Christensen] said the euro's recent rally is illusory and the shared currency is set to fail because the continent hasn't supported it with a fiscal union."

"The whole thing is doomed," Christensen said yesterday in an interview at the bank's Dubai office. "Right now we're in one of those fake solutions where people think that the problem is contained or being addressed, which it isn't at all."

Click here to read the article in its entirety.

 In his recent speech to the European Parliament, Mario Draghi, the President of the European Central Bank, pointed to the recent rise of the Euro as a potential downside risk to the European economy. If this is the outspoken view of the president of the ECB, the Euro may by facing concerted efforts in the not-too-distant future by the ECB to reduce the drag that higher Euro levels can have on exports as well as debt burdens.

We will be looking for additional accommodative actions from the ECB if European economies continue to slow. The question then will be how the ECB's actions with the Euro will compare with the Fed's actions with respect to the US Dollar. We may be well be seeing the technical and fundamental backdrops converging conveniently to drive the Euro lower.

 

Written By: Joshua Ungerecht
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Currencies, ECB, EUR/USD, Euro, European Central Bank, Federal Reserve, France, Recommended Reading, US Dollar