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Euro’s Reversal Could Fail Should Market-Wide Risk Appetite Falter

Fundamental Forecast for Euro: Neutral

- German investor confidence suffers its steepest monthly drop since October 2008

- A successful debt auction quiets fear that Spain needs an EU/IMF rescue similar to Greece

- Is EURUSD bullish run a lasting reversal or temporary correction?

There was a clear skew in the euro’s performance across the majors this past week. There was no clear division on the shared currencies performance regardless of whether it was paired up with a high yield, safe haven, fundamentally robust or financial unstable counterpart. As evidence to this unusual mix, the euro advanced 2.2 percent against the US dollar and 1.2 percent versus the Canadian dollar. Alternatively, the Aussie dollar climbed 0.3 percent and the franc 1.4 percent. This tells us that there is no definitive driver for the broader market (risk appetite, sovereign credit risk, growth expectations); and the euro itself cannot simply advance on the virtue of a overdue rebound (like it has done with EURUSD). Looking to the week ahead, we have to balance the speculative mass’s confidence in the Euro Zone’s financial stability; the level of risk appetite that prevails; and the fundamental standing of the economy itself.

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Source: DailyFX Forex Market News