Foreign exchange market

Fundamental Analysis, for April 20  2013

On Friday the euro rose against the dollar in European session after the publication of the German IFO survey and affected the business climate in the country. The measurements made between about 7000 heads of leading companies reached 9-months highs, growing more than expected. With data like this is much too say concerning the asymmetry between the Northern and Southern Europe in present circumstances.

While in Germany the employment situation, wages and output is close to positive level considering the IFO report as the ZEW index, which reflects the country's financial climate, the nations that until recently appeared in the top 10 in the world, like Spain, have no choice but to celebrate the opportunity to place debt in the credit market, as it has happened on Thursday.

Considering this situation, we can come to several conclusions. It is clear that the euro project was created by Germany, which in turn kept the infrastructure part of the sovereignty of their peers for each currency. But the situation was expected to be different between countries that adopted the new currency - the euro or to adopt it in the nearest future. In other words, there are protection mechanisms amid the emerging problems.

The euro is trading at the 1.3 level or above, and irrespective if problems that can occur can change the debt situation of countries whose debt is becoming unaffordable, except of observing almost record levels of its economic growth expected in coming years. The main sources for this growth are high exchange rates.

But Germany is not concerned about the exchange rate. A large part of its exports are dumped to the rest of Europe where the euro is handled exactly. This can be considered as an insignificant fact taking into accounts its losses or gains against the dollar. No doubt that currency revaluation affects the export market of any nation, unless the currency of your client is the same as yours. We always say the same thing, but do not underestimate the Germans.

One of good news is from the German IFO, as stated above, on the recent euro’s erratic tendency. But the UK also offered a good thing: retail sales rose 1.8%, 4 times more than expected, and that's how the British pound to the benefit of the euro reached its high since last November. But at the moment reversal patterns are expected to take place in the nearest future.

The rest of the coins have undergone no significant changes: the franc gradually follows the euro, the Canadian dollar parity pivots against the dollar, but today the situation can change due to the release on consumer inflation rate in Canada. The Australian dollar’s direction is not clear, as the one of gold and the yen starting to discount a devaluation of the Bank of Japan to the 27th of April amid the announcement of a plan to stimulate the economy.

European shares are trading at a profit: the oil is traded at $ 103.20 per barrel WTI, and Dow Jones futures become a dangerous play in supporting 12840 points, below which the picture can become very bearish.