Euro Pressured by Recent Euro Zone Events

During the past two weeks the euro has been pressured by a succession of events which began with Dubai World’s default and debt restructuring. Next Greece’s sovereign credit rating was downgraded from A- to BBB+. Next Spain’s economic outlook was downgraded to negative. Also pressuring the euro is its perceived strength. Nine months ago most experts had predicted that the euro zone would be the first of the major economies to recover from the global recession. Unfortunately economic data did not match expectations and many now predict the euro zone will trail Japan and the US in economic recovery.

Euro Could Hit Three Month Low

Last month the euro rose to a one year high of $1.5144 is now poised to fall to a three month low of $1.4446. Tsuyoshi Okada, the managing director at the research unit of Japan’s largest foreign exchange margin dealer in Tokyo stated, “The charts are now showing signs of change for the euro, and herald an end of its rising trend,” Okada said. “Should the decline of the euro gain traction, the immediate target will be mid-$1.46 and the next target will be the $1.4446 level.”

Federal Reserve Meets on Tuesday and Wednesday

Investors will be watching the US Federal Reserve meeting which will take place on Monday and Tuesday. The Fed’s policy setting meeting will take place about a year after the central bank cut rates to historic lows of near zero. Speculation that the Fed will raise rates sooner than expected was prompted by better than expected US employment figures and positive retail sales and consumer sentiment data. Despite the speculation it is widely expected that the Fed will continue to keep rates low well into 2010. Fed policy makers have pointed out that stalled credit markets and high unemployment indicate a prolonged recovery from the recession. Philadelphia Federal Reserve Bank President Charles Plosser cautioned that one month of positive data does not equal a trend.