The Euro has spent the last couple of days clawing back what I can only describe as fragile gains. Small releases of good news and the defiance of any breakup of the single currency have temporarily released pressure on the single currency. For me I stand by my statement of a week or so ago that EUR/USD and GBP/EUR will cross in value within the next 6-8 weeks and the Euro will be in for further upcoming pressure.
With additional bond auctions this week expect to see yields increase further and I can’t see it being too long before many bonds reach levels that the market would describe as unsustainable. Portugal’s 10 year bond now sits at over 14% and the level on their 11 month bond sits at around 5%. We have to remember that until recently reaching 7% on a five year bond was deemed to be the threshold for Italy, Spain and Portugal to be the level that they could sustain and would need to request bailouts. Over the coming months I would be looking for the Euro to continue to depreciate and see further downgrades most likely coming from Fitch and Moody’s after S&P lead the charge last week with nine downgrades.
In the coming months expect to see a stronger USD as it looks to remain the safe haven of choice and levels of the early 1.20’s against the Euro and just either side of 1.50 against Sterling are still firmly on the cards.
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