eur fundamentals

Euro Surges Nearly 2.5%, Yet the Euro-zone'€™s Economic Outlook Remains Bleak

Monday, 15 December 2008 23:05:19 GMT  |  Terri Belkas, Currency Strategist

The euro jumped more than 2 percent against the US dollar and hit a fresh record high versus the British pound on Monday, but that isn’t to say the outlook for the Euro-zone is optimistic.

Indeed, according to the European Central Bank’s Monthly Bulletin for December, Eurosystem staff project that average annual real GDP growth will be between 0.8 percent and 1.2 percent in 2008, between -1.0 percent and 0.0 percent in 2009 and between 0.5 percent and 1.5 percent in 2010. Likewise, inflation is anticipated to slow further with overall HICP projected to be between 3.2 percent and 3.4 percent in 2008, between 1.1 percent and 1.7 percent in 2009 and between 1.5 percent and 2.1 percent in 2010. This is much of the reason why Credit Suisse overnight index swaps are fully pricing in a 25bp cut by the European Central Bank during their next meeting on January 15 and over 100bps worth of reductions during the next 12 months. None of this has stopped the euro from making headway, though, and the EUR/USD pair could be headed for a test of resistance at the 9/11 low of 1.3880. At this juncture, the extensive EUR/USD declines from mid-July though October were bound to experience some sort of bullish retracement, and with FXCM Speculative Sentiment Index showing that traders are net short the pair, this contrarian indicator signals further gains.

Related Article: Euro Weekly Forecast


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