Euro--Thursday morning, April 24, 2008
Two engines for short covering rally in dollar this morning.
One, there were two separate business surveys from the eurozone--the IFO from Germany and the INSEE from France--which both fell more than expected. And immediately commentators began to air the view that this is concrete evidence of damage from an elevated euro exchange rate. Damage they have been looking for, but which has seen illusive. Calls for a less hawkish ECB, etc..
The second engine is the emerging view that the Fed will pause after a 25 bp easing next week. Featured in WSJ article by Greg Ig and in chatter by bank analysts. A topping pattern in bond charts?
So you see a new scenario being ventured: Fed is done easing, ECB will not raise rates anymore and might actually begin to ease. The problem with the second part of this scenario is that it might fall within the category of wishful thinking. This is not the first time this opinion has been tossed out there, and so far every time Trichet or some other ECB official has calmly shot it down.
So--at this point--it is best to see this as primarily dollar shorts showing a little caution. There is some damage to the euro rally, but not enough to signal a change in trend. Yet.
