Week of Woes for Euro Behind, Uncertainty Ahead

This week was really bad for the euro as an impressive rally of the previous weeks quickly turned into a sharp slide, reducing optimism of euro bulls and making them question sustainability of the current price level.

The shared European currency attempted to hold its ground against the dollar and even rallied against the pound, but any signs of strength waned and the currency abruptly fell after the European Central Bank announced that it’s maintaining the minimum bid rate at 1.25 percent. The rumors about Greece leaving the Eurozone, even after being denied by the officials, further hammered the euro into ground. ECB President Jean-Claude Trichet mentioned the fiscal difficulties of some countries in his speech after the monetary policy decision:

Turning to fiscal policies, current information points to uneven developments in countries’ adherence to the agreed fiscal consolidation plans. There is a risk that, in some countries, fiscal balances may fall behind the targets agreed by the ECOFIN Council for the necessary and timely correction of excessive deficits. It is essential that all governments meet the fiscal balance targets for 2011 that they have announced. Where necessary, additional corrective measures must be implemented swiftly to ensure progress in achieving fiscal sustainability. The implementation of credible policies is crucial in view of ongoing financial market pressures.

Some economic indicators also gave reason for concerns. The retail sales in the Eurozone posted an unexpected decline by 1.0 percent instead of predicted increase by 0.2 percent. The Deutsche Bundesbank reported that the German factory orders slumped heavily by 4.0 percent. That’s compared to the forecast of the 0.4 percent growth.

EUR/USD closed at 1.4314 this week after rallying from 1.4808 to 1.4939. EUR/JPY dropped from 120.15 to 115.44. The advance of EUR/GBP from 0.8863 to 0.9041 turned into fall to 0.8747 by the end of the week.

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