EUR at risk of fresh sell-off
Pressure on the single currency eased after Portuguese President Anibal Cavaco Silva said the government will stay in power to ensure the international bailout remains on track.
Nevertheless, the euro (Currency:EUR) is looking rather bland and is holding onto recent moves come mid-morning in London.
The euro was afforded gains courtesy of a broad-based US dollar selloff yesterday - US home sales fell surprisingly. The immediate market reaction was to sell USD. The reason behind the sale was a rising concern that the Fed will not start scaling down in September.
Are you looking to sell EUR-USD on the latest market moves? Unsure where to enter a trade? Why not follow the most successful traders on the world's largest social trading network to increase your odds of trading success. More Here.
But, focus now rests squarely on the shared currency
"Of all the major currencies, the euro will be in center focus this week. With manufacturing and service sector PMI reports scheduled for release along with the German IFO index, all eyes are on the performance of the Eurozone economy," says Kathy Lien at BK Asset Management pointing out that today's flat markets could merely be the calm before the ripple, or storm should data really underwhelm.
Indeed, there are worrying developments that could cause headaches for the euro ahead.
When we last heard from the European Central Bank earlier this month, they were concerned about the outlook for the region.
ECB President Draghi said that monetary policy will remain accommodative as long as needed because there are downside risk to their economic outlook.
As Lien points out, he even talked about how they are "technically ready" for negative rates.
Lien says the euro has seen the bar lifted when it comes to beating expectations:
"Most of the economic reports that we have received have so far validated Draghi's concerns but this week, economists are looking for an improvement in economic activity and German business confidence. So the question is whether the ECB's doubts about Eurozone growth are misplaced because economists are looking for stronger activity.
"We believe that the risk is to the downside for Eurozone data because industrial production, factory orders and investor confidence have weakened and unemployment in the region remains very high. At the same time, despite his dovish comments Bernanke confirmed last week that the Federal Reserve is looking to taper and the prospect of higher U.S. yields should cap gains in the EUR/USD."