© Michael Hewson
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In my opinion, it is relatively difficult to draw too many conclusions from several months' figures. We have seen a slight improvement in Italian and Spanish data; however, French data continues to be a cause for concern. Moreover, the high unemployment rate within Europe requires immediate strategy that would be able to resolve this issue.
I believe Europe can expect a slow recovery and a gradual improvement over the coming weeks. On the other hand, there is a wide concern that recent floods in Germany can hit its growth once again.
All in all, the economic data is still in contraction. It is improving slowly, however, chances to see growth of the EU demand is still small as countries like Spain, Italy and France are cutting their spending's further and consumers are mostly looking for possibilities to tear back their expenditures.
What will determine EUR/USD performance in the near term?
When talking about EUR/USD currency pair, I believe that Euro performance is mostly affected by the underperformance of the USD and the interest rate differentials they're in. We saw EUR/USD rising to the highest levels during last three to four months; however, the weak European economies definitely do not benefit from this fact. Europe needs weaker currency not a stronger one. In order to deal with this problem, the ECB policy makers have to `talk down` the Euro. The main problem is that European Central Bank policy makers do not like to be seen manipulating their currency. Unfortunately, they do not have a choice, as they need to weaker the Euro and in case the ECB does not act further to cut the interest rates, all they would have left is the verbal intervention.
What are you forecasts for EUR/JPY and EUR/USD for the long and for the short term?
I expect EUR/USD to weaker further over the next three months and fall back to around 1.30. In a year`s time I expect EUR/USD stay around 1.25.
As concerns EUR/JPY, my forecasts are 1.25 in a three months` time and 1.22 in a year's time.