Has The Long Awaited Slide In The Euro Started Against The Dollar?

Last Thursday the US dollar fell to a two-year low against the euro on growing expectations that the US Federal Reserve will not start tapering until 2014 and purchases of assets will continue at the current rate for a few more months.

US Federal Reserve will continue bond purchases next year and that there will be no tapering in 2013. However, recent European data has been weak with European growth figures, unemployment and European PMI figures weaker than expected over the last couple of weeks. With European data so weak, it seems unjustifiable that 1.38 USD are needed to buy one euro.

There is still much political concern in much of Europe with French, Greek, Spanish and Italian governments very unpopular as austerity measures continue to hurt European lifestyles. Millions of the young unemployed are experiencing much hardship and disappointment as they have very little hope of securing a job in the near future. The rate of unemployment amongst those under 30 is still around 50% in Greece, Portugal and Spain.

EUR/ USD traders are beginning to question the sustainability of the current rally in the euro. They want to see eurozone economic data driving the euro higher rather than a weaker dollar but data from Europe recently has been disappointing and so some pressure is beginning to build on the euro.

The euro at 1.38 is certainly toppy at this level and there is room for very little disappointment at this level. Goods and Services are far more expensive in Europe than in the US and the current exchange rate does not help French, German and Italian exporters. European tourist destinations such as Greece, Italy, Portugal and Spain which rely on foreign visitors are certainly not helped with the euro at a two-year high against the US dollar. The euro has certainly benefited from the political shenanigans in the US with the US government shutdown but now that a deal has been agreed attention is now back on the fragile state of the European economy and extremely strong currency.