Week in FX Europe – Political Scandals Threaten Economic Recovery

The EUR recovered this week versus the USD. The single currency started the week trading around 1.2816 in the Asian session after a very strong Non-farm payroll figure in the US. The EUR received a strong shot in the arm on July 10, as the Fed’s minutes were released. Shadows were cast on the end of quantitative easing in the United States with a divided Fed membership. The EUR shot up to above 1.31 and was able to maintain some gains even after Fitch Ratings downgraded France. At the end of trading on Friday the currency is hovering in the 1.3040/50 range.

While the currency has able to recover some ground the Euro zone economy was rocked by major scandals. Luxembourg PM Jean-Claude Juncker is set to call to snap elections after a spying scandal broke. Juncker is one of the longest serving EU politicians. Luxembourg was not somewhere where there was a high political risk expected and this piece of news took the market by surprise.

Italy on the other hand is no stranger to political drama. The Berlusconi case continues to complicate matter for the current government. In order to avoid some of the alleged crimes from expiring, the courts are fast tracking Berlusconi’s appeal. His party are protesting the decision because if Italian justice took their regular time, he would not be liable for those crimes. The protest could end up with the coalition that is currently in power which would take Italy back to the polls.

Portugal is facing the end of its political party coalition fracture. With the sudden resignation of its Finance Minister over the current austerity package came the resignation of a political party leader that was a member of the coalition. The President of Portugal has asked the two ruling parties and the opposition to come together and reach a “national salvation” agreement. This agreement will have to include the implementation of the austerity laden bailout program. Portuguese bond yield have been negatively affected by the political uncertainty and have shot up to 8%.

WEEK AHEAD

* CNY GDP
* USD Advance Retail Sales
* AUD RBA Policy Meeting – July Minutes
* GBP Consumer Price Index
* EUR Euro-Zone Consumer Price Index
* EUR German ZEW Survey (Economic Sentiment)
* USD Consumer Price Index
* JPY Bank of Japan June 10-11 meeting minutes
* GBP Bank of England Minutes
* CAD Bank of Canada Rate Decision
* USD Fed’s Bernanke Semi-Annual Policy Report to House and Senate
* USD U.S. Federal Reserve Releases Beige Book
* EUR G20 Labour Ministers Meeting in Russia
* CAD Consumer Price Index

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza
Alfonso Esparza

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