Is the European Union viable and needed?

10 February, 2017

The US dollar has erased the advantage gained earlier this week against its major opponents, as uncertainty hovers over the outcome of the tet-a-tet between Trump and Shinzo Abe. In the main mixture for doubt is also the lack of information on US fiscal policy, which made investors postpone the idea of a premature bid on the US currency. The dollar index is trading at 100.19, virtually near the opening of the Thursday session and is at stake of testing the major support level of 100, while boosting the confidence of Pound and Euro bidders.

After a few days of defence, the Pound and Euro are attempting to assume the offensive due to the temporary lull of the political scene in EZ, allowing the European currency and the stock market to recover. A bailout of the Italian bank Monte Dei Paschi, the Greek economic crisis, as well as Deutsche Bank charges are no longer front page news, but they continue to pose specific risks to the financial stability of the Eurozone. In the medium term, the Euro may lose support in connection to the investors growing concerns over whether the European Union is viable at all.

Pound grew on Thursday by 0.26% on the inflated expectations of the policy tightening and waning concerns about a possible “hard” exit from the Eurozone. Comments of the Prime Minister Theresa May on Wednesday stated that the EU must remain a strategic partner after  Brexit cheered Pound bulls. 

On the other hand, the bond market anticipates accelerated inflation in the EZ, waiting for the ECB to take action. The yield on ten-year German Bunds increased from 0.0 in October to more than 0.450 points in January, and then sharply decreased to 0.310 in early February on the concerns that Brexit fire could spread to other euro-zone countries such as France, Denmark and Romania ahead of the upcoming polls. Rising long-term bond yields in the United Kingdom indicates low risks of recession, charging pound with undying optimism.

Economic data continue to provide mixed tips: German trading balance (MoM) fell from 22.7 billion to 18.7 billion euros in December, mostly due to a sharp drop in exports (-3,3%), the import has not changed falling short of  projected 1.1%, undermining prospects for good figures on consumer price inflation from the bloc’s leader.

Bank of New Zealand has extended the easing program leaving rates unchanged causing a sharp drop in the NZD to 0.72 area. A selloff may be resumed after a short-term correction.


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