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Can the Euro Extend its Gains

Friday, 16 May 2008 21:26:35 GMT

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Written by Kathy Lien, Chief Strategist
The Euro staged a very strong rally against the US dollar today after quietly selling off for the past 3 days. The move was due almost entirely to the US numbers as the Euro started to gain strength quickly following the University of Michigan Consumer Confidence report. Eurozone economic data was actually bearish for the currency with the trade surplus swinging into a deficit in the month of March. This providex evidence that the strong euro is finally weighing on the region’s economy. ECB officials continue to express their conflicting concerns about inflation and growth. Constancio said that it is difficult to predict how bad the Eurozone economy will get while Liberscher indicated that 3 percent inflation is unacceptable. Fundamentals will be heating up for the Euro next week with German producer prices, the ZEW survey, IFO and PMI reports due for release. We actually expect most of the numbers except for the inflation reports to be Euro negative. With factory orders and industrial production turning negative, it would be a surprise if business sentiment managed to improve. Meanwhile Switzerland reported a 9.7 percent rise in adjusted retail sales. Although the headline number is encouraging, it is distorting because the work day adjusted number actually dropped 2.5 percent yoy, meaning that Easter was the primary reason for the strength. 
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