Euro gets a boost, here’s why
“We have the best result
in more than four years,†noted Gernot Nerb, chief economist of IFO
economic institute after the survey results surprised the market by printing
better than expected 96.0 vs. 94.6. But Mr. Nerb also stated that the outcome of
German elections weighed heavy on business confidence and “If one took only the
expectation of the companies that handed in the information late (after the
election results) the increase in the index would be smaller.â€
Mr. Schroeder and Mrs. Merkel will convene
coalition talks this Wednesday, but with neither party willing to give up claim
to Chancellorship, the negotiations are expected to be slow and uneventful. The
best news for the euro is coming from the economic rather than the political
arena as the lower euro stimulates more orders from the export based Euro-zone.
However, the hawkish tone from Fed officials
continues to underpin the dollar. Last night Kansas Fed’s Hoenig reaffirmed Fed
policy bias towards controlling inflation rather than focusing on growth. Such
attitude is likely to favor a restrictive US monetary policy, which has been the
primary reason for the rising dollar. Yesterday, the pundits made much of
reported remarks by Alan Greenspan to French Finance Minister Thierry Breton
that “US has lost control of the budget process†Indeed some analysts believe
that Mr. Greenspan may be trying to overcompensate with monetary policy to avoid
the dangers caused by profligate fiscal spending. How long Mr. Greenspan can
maintain the balance remains to be seen, especially if consumer spending, which
represents more than 70% of US GDP, comes to a screeching halt ahead of the
critical Christmas shopping season.
Boris Schlossberg serves as Senior Currency
Strategist with Forex Capital Markets in New York, the largest retail forex
market maker in the world. He is a monthly contributor to SFO Magazine with
articles focused on understanding proper risk management, trader psychology and
true market structure. He is also a featured expert at
www.fxstreet.com and a frequent
commentator for the Marketwatch From Dow Jones Currency and Bond Report
sections.