EUR Fundamental Analysis-21 July 09

By: William Doody
The Euro broke above its recent trading range against the Dollar and moved to a nearly seven-week high as increasing signs of recovery in corporate earnings reports encouraged traders to abandon their safe-haven buying of the U.S. Dollar. The proposed private-sector bailout of CIT Group further weakened the Dollar as the danger of the lender’s immediate collapse was removed, allowing currency traders to move towards riskier bets. While the Dollar ticked lower against most major currencies, it was the Euro which saw the most pronounced move higher.

Looking ahead to the balance of the week, Wednesday will see the release of French consumer spending results and Eurozone industrial orders data. In order for the Euro to maintain its recent positive trend, we believe both of these results need to come in at or above expectations. On Thursday, the most significant economic release will be from the U.K., where retail sales numbers are expected. A poor result may drag down the Euro in sympathy with the Pound. Finally, on Friday, French consumer confidence and German and Eurozone purchasing manager data are to be announced. Again, the positive Euro momentum needs at-expectation results to continue.

We think it is prudent to take profits on a portion of the long-Euro trade in light of yesterday’s break above the recent range. Still, recent indications of a strengthening economic climate should continue to be positive for the Euro and we would remain long.