Euro Down / Dollar Up ?

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With PMI hinting at negative GDP growth in coming quarters, we can conclude that the Eurozone is approaching recessionary state at the same time that markets are punishing the monetary union by closing Greece, and now Italy, out of funding markets. There couldn’t be a more negative configuration for the Euro as the economic fundamentals depreciate the currency, and risk aversion benefits safe haven buying in US Dollar.

Now, the ECB is in a realization that it’s obsession with staving off inflation was put too far ahead of being accomodative to deteriorating peripheral countries. We now expect them to retrace their two recent rate hikes and get to the previous 1.0% benchmark rate.
While violent snap-backs are part of the game now when trading highly correlated currencies, their effect is similar to that of interventions from the Bank of Japan; the moves are powerful and quick in the short-term, but they lack backing to be sustainable for the long term. The US Dollar should benefit from not just the safe-haven seeking during the daily Greek and Italian bond sell-offs, but also from longer term shifts toward positive US growth relative to the Eurozone.

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Anthony DiChi at TradeCurrencyNow,
America’s Forex News and currency information source.