Filed Under:
Forex pairs in this Article »
FXstreet.com (Barcelona) - Nick Bennenbroek, Head of Currency Strategy at Wells Fargo notes that investor sentiment towards the Euro was distinctly negative for large parts of 2012, though thanks to a sizeable second half recovery, the euro gained 2% against the Greenback for the year as a whole.

Among the notable events driving that recovery were the ECB announcement of OMTs, and Greece's securing of further financing from its European partners. As we head into 2013, we suspect the market's focus will shift from market to macroeconomic factors, a shift which should weigh on the Euro.

Bennenbroek believes that the run of encouraging European developments in recent months is coming to an end, at least for now and looking ahead, investor worries could increase given the more uncertain prospects of a Spanish request for assistance from the ECB and Europe's financial aid funds.

Elsewhere, Italian PM Monti's pending resignation and subsequent general election have emerged as new investor concerns. As a result, he feels that peripheral Eurozone bond markets may not see much further improvement in the near term. He writes, "The average spread between Spanish/Italian two-year bond yields and German two-year bond yields has narrowed from 610bp in late July to around 235bp now. In the absence of any further significant narrowing in this spread, a positive force for the euro could diminish and even disappear."

Meanwhile, Bennenbroek believes that macroeconomic fundamentals should remain persistently negative for the Euro. The region is in recession and despite some modest recent improvement, European confidence surveys, by contrast, remain consistent with slow positive growth. The gap between the Eurozone PMI surveys and the US ISM surveys is near its most negative for the past 15 years and a degree of economic under performance that typically suggests a decline in the value of the Euro against the dollar.
comments powered by Disqus
Trading Center