eur fundamentals

Euro Headed Towards 1.40?

Friday, 20 July 2007 20:38:53 GMT  |  Kathy Lien, Chief Strategist

The Euro climbed to a new record high today, putting 1.40 within arm’s reach.  Like the US, there was no major economic data released, which means that the move higher was solely driven by subprime related dollar weakness.  The biggest question on the minds of Euro traders is whether this will matter for the European Central Bank, who will be meeting to discuss monetary policy in 2 weeks.  Judging from the recent comments made by ECB President Trichet and his peers, it will not.  Earlier this week, Trichet has warned European politicians that interference into their monetary policy decisions will be a breach of the EU treaty. He may not want to talk down the Euro anytime soon because that may be misinterpreted as giving into political pressure.  Furthermore, not only has ECB Garganas indicated that further rate hikes are likely, but this morning, Constancio said that they have no target for the exchange rate.  Unlike back in December 2005, Germany, the Eurozone largest member country is better equipped to handle a stronger currency.  Therefore if the ECB does step in to stop the Euro’s rise, it would certainly be a blow coming from the left field.  Looking ahead, the most important pieces of data on the Eurozone calendar are EZ PMI, M3 and the German IFO survey.  Steady or softer figures are expected all around.  Meanwhile Swiss producer prices were much softer than the market expected in June, but this has not affected the value of the Franc.  Next week, we are expecting the KoF report of leading indicators. 

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