Article by AlgosysFx Forex Trading Solutions
With the Euro Zone economy continuing to take a hit from the heightened uncertainty over a way forward for the debt crisis plaguing the region, the Euro is deemed to lose ground opposite the British pound today. Bundesbank voiced its opposition to the European Central Bank’s bond-buying plans, while an ally of German Chancellor Angela Merkel suggested a Greek exit from the bloc by next year, both reflecting mounting skepticism over the policies being used to combat the crisis. Such uncertainty is seemingly hampering economic prospects in the bloc as a report on German business confidence is projected to reach a more than two-year low this month.
With continuing uncertainty from the Euro Zone debt crisis seemingly taking its toll on the region’s economic prospects, the Euro is deemed to succumb to the US dollar in the exchanges to begin the week. Bundesbank expressed its criticism of the European Central Bank’s plans to buy distressed bonds while a German government official brought up the idea of Greece exiting the region by next year, reflecting the escalating skepticism over the policies being proposed to combat the crisis. Such turmoil is likely the reason why the business confidence continues to deteriorate, as evinced by today’s German Ifo report.
European leaders are entering a critical month in the debt crisis that involves the formulation of a European Central Bank bond-buying plan, a progress report by Greece’s international creditors or the troika, and an awaited German court decision on bailout funding. Earlier this month, ECB President Mario Draghi expressed that the central bank may intervene to lower yields in countries that ask Europe’s bailout fund to buy its bonds. However, Bundesbank President Jens Weidmann opposed such plans, saying that sovereign bond purchases could increase the Euro Zone governments’ reliance on such funding, making it addictive like a drug. In other words, Wiedmann does not believe that it would solve the crisis. Meanwhile, Euro leaders have said that they will wait a report from Greece’s troika of creditors before making a decision on potentially easing the terms of the $240 Billion lifeline for the nation. Nevertheless, finance and economy ministers in Germany have reaffirmed their opposition to any easing of time frame for Greece, saying that giving it additional time is tantamount to giving it more money. Alexander Dobrindt, general secretary of the governing Bavarian Christian Social Union and an ally of German Chancellor Angela Merkel, even told the German newspaper Bild that Greece would not be part of the Euro in 2013.
On the economic front, conditions are set to continue deteriorating as the Ifo Institute for Economic Research is projected to report that business confidence in Germany fell to its weakest state in 22 months in August. The German Ifo Business Climate is dropped from 103.2 points to 102.3 points this month, potentially its lowest reading since June 2010. With turmoil from the crisis continuing to hurt economic prospects, the German economy, which has carried the overall Euro Zone economy, is likely to lose further steam in the months ahead. Considering these, a short position looks viable for the Euro-Dollar today.
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