Thursday, May 24, 2012

Euro Parity to US dollar 2012?

A cheaper currency would make an export country more competetive. It would not necessarily be a bad thing in that case as long as inflation didn't get out of control. Recent weak factory data and business sentiment data shows the Germany (the euro's largest economy) is struggling.

Widespread European debt and unemployment woes only make the situation worse in a slow global economy. Also, Greece is not the only country that requires support from the Euro. The pot is pretty thick when you throw in Spain, Ireland, Portugal, along with Greece. Did I miss any?

If Greece exits the Euro, parity (or less) could happen sooner rather than later. Currently there's an increased chance that Greece will leave the euro voluntarily or by being booted for not adhearing to EU austerity demands.

Greece however does not like the idea of strick austerity (even if it brought it on itself) because it means too many cut backs in the public service sector and less room to function as a government. With less room to function comes more turmoil for Greece but still it may be a lessor devil to deal with if it were to abruptly leave the Euro. It is a very unromantic relationship with lots of possibility for heartache.

As if it isn't enough to deal with in Greece with high unemployment, unsustainable debt, and a long list of overall instability in Greece; there is also the Greek election on June 17th, 2012. With the austerity being cosidered too strick Greece might vote in an anti-austerity government which would be considered to be anti-Euro. No matter how you spin it the debt is here to stay for a long time to come and a near-term solution to fix Greeces problems just does not exist at this point.

China has tried to support the Euro because a devalued Euro would hurt China. China's support may explain the Euro's "slow" fall when ecomomically things seem out of control. Perhaps no amount of propping will stop a greater fall with the Euro slipping through key support levels at the same time the global economy seems to be slipping.

The real shock would be if Germany decides to go it alone without the Euro. Many Germans feel this is actually the route to go since they are the leading European economy; perhaps, Germany does't need the Euro for stability especially since Germany is picking up the bill for Greece and other debt-stricken countries.

Euro Data this week:
EUR Euro-Zone Current Account s.a. (euros) (MAR) 9.1B Previous: -1.2B
EUR German IFO - Business Climate (MAY) 106.9 Forecast: 109.4 Previous: 109.9
EUR German IFO - Expectations (MAY) 100.9 Forecast: 102 Previous 102.7
EUR German Gross Domestic Product w.d.a. (YoY) (1Q F) 1.2% Forecast: 1.2% Previous: 1.2%

Neal Vanderstelt - Currency Analyst
Please rate & recommend:

No comments:

Post a Comment