Carry Unwind Hurts Euro    

The unwinding of carry trades and fears over the Euro-zone economy will continue to undermine the Euro in the near term, although selling looks to offer little value at current levels.

As expected, the ECB left interest rates at 4.25% at the latest council meeting. In the press conference following the decision, Chairman Trichet repeated that the growth risks were skewed to the downside with current conditions weak. The central bank head also warned over inflation, stating that it would stay above target for a prolonged period. There was a particular focus on wage pressures and the need to avoid secondary inflationary effects.

The relatively tough ECB inflation stance failed to provide a boost to the Euro with markets focussed on the growth risks. These fears were illustrated by the further 1.7% decline in German factory order, the eight successive decline, and confidence in the European financial sector also deteriorated as the ECB made it more expensive for banks to secure funding.

The Euro remained under pressure in US trading with particular stresses on the crosses as it weakened very sharply against the yen. The Euro also weakened to 2008 lows against the dollar with a decline to lows around 1.4215 as losses accelerated in late US trading. The Euro remained under pressure on Friday as German industrial production fell more than expected.

Investica
http://www.investica.co.uk

Disclaimer: Investica's market analysis is not investment advice and must not be taken as recommending particular market positions. Investica can take no responsibility for any actions taken by investors.