Euro with a Greek breather

Written by Sebastian Wanke | 11 May 2015
Posted in Special research

Investors’ basic confidence in the euro erodes. This is signaled by a falling sentix Strategic Bias for the EUR-USD currency pair. Consequently, a period of US-dollar strength is set to lie ahead. But longer term the common currency should be on the rise again.

This week EUR-USD has to cope with a harsh setback in investors’ preferences. The sentix Strategic Bias for the currency pair – which measures the basic conviction in an asset class – decreases sharply by eight percentage points (see graph). In addition, this was its third decline in a row. Obviously, investors are changing minds at the current juncture. This probably is related to the still unresolved Greek financial situation. While at the end of April it looked pretty much as if the country would leave the euro, it now seems to be more probable that it will stay member of the currency club. With this, Greece’s debts would remain a burden for the currency area – which is weighing again on investors’ confidence in the euro.

For the next weeks a renewed dollar strength thus seems to be the most plausible scenario. But this should only be a temporary phenomenon. To our minds, the reason for only a short lived interlude lies in the different economic expectations, also surveyed by sentix. A huge gap has built between investors’ expectations for the euro zone, on the one hand, and those for the United States, on the other hand. Economic perspectives for the euro area are much brighter – and this, in the medium term, is clearly supportive for the euro. We thus think that during the second half of the year a marked recovery in the price of the common currency is on the cards.