EUR/USD (1.4405) The euro came under pressure early in the European session yesterday after Germany’s Q2 GDP data came in far worse than expected. With the country’s growth just above a standstill at 0.1 percent, Chancellor Angela Merkel mapped out a Euro Zone Economic Council with President Nicolas Sarkozy in yesterday’s two-hour meeting, with the intent to ‘strengthen the euro as our common currency’. The details of their proposal have yet to be worked out, according to reports, but the framework pledges a ‘real economic government’ for the eurozone, chaired by the EC President, to better deal with any new financial crises. If market participants were led by the invocation of Herman Van Rompuy to believe that a real plan now exists, the details for the plan are nevertheless still opaque. Mr Sarkozy announced that they shared the same position on Eurobonds for now, although he can imagine their creation someday at the end of the European integration, thereby keeping the hope alive for Eurobond proponents.
The euro ended the day unchanged, surprisingly, given the uncertainty surrounding the eurozone’s growth prospects. However, the US dollar might be the real market mover, especially after Beijing announced that it will allow the dollar to devalue by widening the yuan’s trading band. Since we perceive the euro as somewhat stronger than the US dollar, we would embark on a dip-buying strategy at 1.4350 today, with a risk-limit set at 1.4290 and with a target at 1.4810.
Market Bias Index
The Market Bias Index reflects the euro’s slight overvaluation bias against the euro. The Swiss franc is now perceived to be slightly undervalued.
Click here to read the full report:
http://www.easyforexnews.net/wp-content/uploads/2011/08/GDPBD00000190586.pdf
Deutsche Bank
Fixed Income Research – Global