Tuesday, July 29, 2008

Some thoughts on the Euro

European stocks have been struggling this year as have stocks worldwide. The decline has been led by Financials and airlines. This is again a universal theme.

``If you're looking for good news from the banking sector I suggest you go on holiday because it is just not going to be there,'' Howard Wheeldon, senior strategist at BGC Partners LP in London, said in a Bloomberg Television interview.

Earnings estimates are being trimmed and I see little reason to think that things will get better in the near term future.

In the States the curbs installed for preventing short selling is being credited for the large bounce in Financial stocks last week. I think that the over sold nature of the sector also had a lot to do with it. But as in Europe I would not get overly long just yet. The capital structure of most financial institutions is poor and only time will get them out of it. If fundamentals are not good then preventing short selling will not help things, only delays the inevitable.

A recent survey of German consumer confidence showed a decline to five year lows, this is certainly not good sign.

``Three things are weighing on sentiment: inflation, inflation and inflation,'' GfK Chief Executive Officer Klaus Wuebbenhorst said in an interview on Bloomberg Television. ``And the European Central Bank raising rates also makes consumer loans more expensive.'

Besides inflations slower growth is weighing on the region and the ECB has made it clear that inflation is the biggest worry, therefore growth could really suffer.

``Along with fears of high inflation, many Germans are concerned that there will be a more marked cooling of the economy than previously anticipated,'' GfK said. ``News from the U.S. of the continuing gloom in the financial markets support these assumptions and not least, the continuing high value of the euro represents a hazard to exports.''

Overall I think that the Euro could suffer moving forward (I know I have said this many, many, many times before).
Technically we are in the middle of a range, a range we have been in since Feburary. No need to break out now but I think when it does break, it will break to the downside.

Good Luck and Good Currency Trading



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