Morning Fundamentals: Limited Chance Of Survival For Euro?

Kai Konrad, one of the most senior economic advisers to the German government has said that the euro has a limited chance of survival and that the common currency may only last for another five years. Konrad, the chairman of the scientific council that advises the German Finance Ministry, made the comments despite the official view of the Merkel government that the euro is vital for a stable Europe. Konrad said, “'No country can pile up debt without running the risk that their investors will pull the plug. It's in each (country's) interests to keep their own debts as small as possible. Where the limit lies has to be individually decided. That depends, among other things, on economic growth and the growth of population."

Meanwhile in the United States, it appears that politicians may have more time to kick the can down the road as a re-structure to taxation and a rise in government revenue due to an improving economy may give the U.S. Treasury De-partment more time, than had been preciously estimated, before the government's debt limit is once again reached. The date may have moved as much as two weeks from mid September to the end of that month. The later deadline would give Congress more time to debate the increase of the debt ceiling with Treasury receipts rising to $1.2 trillion in the March half, up more than 12% from the previous half year. However, government spending was still $1.8 trillion. One can easily work out the scale of the deficit!

U.S. equity markets have extended their gains to a fifth consecutive day as earning from United Parcel Services came in better than expected and jobless claims fell. 73 percent of the companies that have reported so far have exceeded earn-ings expectations. However, 55 percent have missed revenue targets. In the week ending April 20, jobless claims fell by 16,000 to 339,000 against a median expectation of 350,000. The S&P 500 has closed 0.4% higher at 1,585.16. Earlier in Europe, bourses were mixed with the DAX rising 0.95% while the CAC 40 fell marginally.


EUR/USD rose steadily over the 24 hours before the middle of the London session as a lack of important data or news events has allowed the market a period of recovery time from the turmoil that is expected on the news week of the announcement of rates from the ECB. Euro reached a top of 1.3090 on shorts being squeezed ahead of the Spanish employment numbers. However, once released the market turned south quickly as the building expectation increased that the ECB will have to cut next week. Unemployment in Spain is running at over 27%! Euro crashed back towards 1.3000 during the US morning and has remained heavy with a German economic advisor believing that the euro will last for no more than 5 years. Little important data over the next 24 hours but for USA GDP which is expected to improve should have Euro continuing to be on the back foot. For momentum to build it needs to break the mid 1.29s shortly.

Compass Direction
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NEUTRAL BEARISH
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AUD/USD has steadily climbed over the past 24 hours as a lack of volume during the Australian session due to ANZAC day allowed foreign investors the run of the mill. The buying managed to take the price back towards 1.0300 with the momentum extending during the European and US session on improved equity and commodity markets. Offers continue to be placed in the middle of the handles with selling stacked up between 1.0340/50. However, these offers were not really tested on this weak run higher as Euro retreated on the back of another higher unemployment number in Spain and an economic advisor in Germany signalling an end to the euro in five years. We close the day with AUD back below 1.0300. Another data free Friday and an open below 1.0300 should see the offers at 1.0340 left to themselves and talk of building stops sub 1.0280 likely to get the interest. Should we see a move below 1.0260 its hard to believe the markets wont try another test of the previous 1.0230 low.

Compass Direction
Short-Term Medium-Term
NEUTRAL BEARISH
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