DJ Forex Focus
Any Late Summer Euro Rally Is Likely To Fail. By Nicholas Hastings
The euro is ending the summer on a high note that could push it out of the top of the narrow trading range against the dollar that has prevailed since June.
However, any gains are unlikely to last long.
Not only is the euro zone recovery likely to prove as fragile as officials have warned, but the euro itself will be at risk if Ireland fails to pass the Lisbon Treaty early next month.
Financial markets are certainly ending the summer in a good mood.
Economic evidence suggests that the global recovery continues and G20 finance ministers have reassured investors that they will be leaving their easy monetary and fiscal policies in place for now.
This has all helped global equity markets to extend their rallies and encouraged international investors back into high-yielding riskier markets.
This trend not only pushed the Australian and New Zealand currencies up to new 2009 highs on Monday, but the euro was lifted back up towards $1.44.
The rise was further encouraged by the latest factory orders from Germany, which rose by a sharp 3.5% in July, extending the 4.5% increase seen in June.
Nevertheless, support for the single currency is likely to prove short-lived.
Finance ministers are preserving their credit crunch policies because the global recovery simply isn't strong enough to cope with a reversal.
In the euro zone's case, the recovery could prove even more fragile than most.
Last week, European Central Bank President Jean-Claude Trichet appeared to drive this point home, by announcing that the bank wouldn't even add a spread to the upcoming 12-month government note tender.
"This underscores the council's skepticism on the recovery," said Marshall Gittler, chief strategist with Deutsche Bank Private Wealth Management.
Some now reckon that rather than start hiking rates again in the first half of next year, the ECB may now wait until the third quarter - making it even more likely that the euro yields lag behind those of its major trading partners and make the euro itself that much less attractive.
Politics could also play a key part in undermining the current euro strength if Ireland fails to ratify the Lisbon Treaty that clears the way for a more federal Europe.
In recent weeks, Irish support for the treaty has been in decline - falling to 46% from 54% - making a 'no' vote that much more likely in a referendum on October 2.
This rejection would stop the treaty coming into force next year and once again put the question of political unity in the euro zone in doubt.
If that is the case, rather than making a sustained break over $1.44, the single currency is more likely to fall back again - with the narrow trading range of the summer being extended even further into autumn.
Early Tuesday in Europe, the euro was benefiting from another rise in stock markets with the Nikkei ending 0.7% higher and the Shanghai Composite Index rising 0.9%.
Optimism over the global recovery, encouraged by a rise in Australian business confidence to levels last seen in October 2003, was also reflected in the continued rally in the price of gold, with the spot price now rising above $1000 an ounce for the first time since February.
By 0645 GMT, the euro had risen to $1.4380 from $1.4339 late on Monday in Europe. The single currency was also down at Y133.18 from Y133.54, while the dollar declined to Y92.63 from Y92.97.
However, any gains are unlikely to last long.
Not only is the euro zone recovery likely to prove as fragile as officials have warned, but the euro itself will be at risk if Ireland fails to pass the Lisbon Treaty early next month.
Financial markets are certainly ending the summer in a good mood.
Economic evidence suggests that the global recovery continues and G20 finance ministers have reassured investors that they will be leaving their easy monetary and fiscal policies in place for now.
This has all helped global equity markets to extend their rallies and encouraged international investors back into high-yielding riskier markets.
This trend not only pushed the Australian and New Zealand currencies up to new 2009 highs on Monday, but the euro was lifted back up towards $1.44.
The rise was further encouraged by the latest factory orders from Germany, which rose by a sharp 3.5% in July, extending the 4.5% increase seen in June.
Nevertheless, support for the single currency is likely to prove short-lived.
Finance ministers are preserving their credit crunch policies because the global recovery simply isn't strong enough to cope with a reversal.
In the euro zone's case, the recovery could prove even more fragile than most.
Last week, European Central Bank President Jean-Claude Trichet appeared to drive this point home, by announcing that the bank wouldn't even add a spread to the upcoming 12-month government note tender.
"This underscores the council's skepticism on the recovery," said Marshall Gittler, chief strategist with Deutsche Bank Private Wealth Management.
Some now reckon that rather than start hiking rates again in the first half of next year, the ECB may now wait until the third quarter - making it even more likely that the euro yields lag behind those of its major trading partners and make the euro itself that much less attractive.
Politics could also play a key part in undermining the current euro strength if Ireland fails to ratify the Lisbon Treaty that clears the way for a more federal Europe.
In recent weeks, Irish support for the treaty has been in decline - falling to 46% from 54% - making a 'no' vote that much more likely in a referendum on October 2.
This rejection would stop the treaty coming into force next year and once again put the question of political unity in the euro zone in doubt.
If that is the case, rather than making a sustained break over $1.44, the single currency is more likely to fall back again - with the narrow trading range of the summer being extended even further into autumn.
Early Tuesday in Europe, the euro was benefiting from another rise in stock markets with the Nikkei ending 0.7% higher and the Shanghai Composite Index rising 0.9%.
Optimism over the global recovery, encouraged by a rise in Australian business confidence to levels last seen in October 2003, was also reflected in the continued rally in the price of gold, with the spot price now rising above $1000 an ounce for the first time since February.
By 0645 GMT, the euro had risen to $1.4380 from $1.4339 late on Monday in Europe. The single currency was also down at Y133.18 from Y133.54, while the dollar declined to Y92.63 from Y92.97.
8 September | 
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