EUR/USD: Euro Weakens Before the Jackson Hole Symposium

In yesterday’s European trading exchanges, the Euro incurred losses against the US dollar on reduced expectations over another monetary easing by the Federal Reserve because of better than expected US economic data. In Europe, disagreements among the leaders once again emerged, thereby seen to hamper plans to overcome the debt crisis. As markets await Federal Reserve Chairman Ben Bernake’s speech at the Jackson Hole Symposium, the EUR/USD pair is expected to weaken in today’s European trades.

Yesterday, Prime Minister Mario Monti and German Chancellor Angela Merkel met in Berlin to discuss debt crisis matters. But their opposing views regarding the issuance of a bank license to the Euro Zone’s bailout fund to boost its capacity, were made apparent as they took it in public. The clash between the two leaders just adds to the already existing divide between Germany’s central bank and European Central Bank (ECB) President Mario Draghi. On August 2, Draghi indicated a possibility that the central bank would resume bond buying to help lower borrowing costs in Spain and Italy. But this was criticized by Bundesbank President Jens Weidmann, saying that it would only make governments heavily dependent on the ECB and would not solve the debt crisis. The ECB president would not attend the Symposium as he prepares to finalize proposals at September 6’s meeting of policy makers.

In the US, the Fed’s Beige Book said that the US economy is expanding “gradually” and economic growth figures in Q2 have been upwardly revised. The US economy beat market forecasts when it posted a 1.7 percent growth, from the initial estimate of 1.5 percent, and pending home sales data exceeded economic projections. The seemingly improving financial condition of the US would likely put little pressure on the Fed to signal more monetary stimulus measures. As such, a short position for the EUR/USD pair is recommended in today‚Äôs European session.

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