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It was a very slight disappointment. In the run-up to Ben Bernanke's speech, EUR/USD gained some ground. We had expected that the Fed Chairman would not announce QE3 on the conference. In fact he did not, but he left the door wide open for the QE3 measures in the future, and that is why EUR/USD did not lose too much ground.
Slovenia might become the sixth European country that would require a bailout as Prime Minister made it clear that the country might go bankrupt in October unless it is able to further issue bonds. If Slovenia decided to seek the bailout, how it might impact the Eurozone economy and the Euro performance?
I think the impact would be very limited, because it is a very small country. For now we are just looking at Italy and Spain, which could create massive problems, because the rescue mechanisms in fact are too small, and we do not know what the ECB will do. Moreover, there are a lot of negative side-effects if the ECB just starts to buy bonds. As Slovenia is a very small country, the rescue fund will easily have enough power to provide enough help for this country. Thus, the impact on EUR/USD will be very limited, even invisible. Nevertheless, it shows that 6 out of 17 countries already needed help and it is obviously a big number.
What is your forecast for EUR/USD for the end of September and for the end of this year?
I think in the current environment, a decision taken by the ECB on Thursday could even lead to higher EUR/USD rates in the very short-term. This is because we know that whenever the ECB decides either to act through the SMP programme or to launch the LTRO, it is perceived very positive by the market. Thus, that could lift EUR/USD at least for a while. Nevertheless, for the end of the year, we would expect lower rates in EUR/USD around area of 1.20.