FOREX FOCUS: Euro May Lose More Ground Against the Dollar – NASDAQ

–Strong euro-zone data and a Chinese upturn have failed to lift the euro

–And the ECB seems likely to stick to its forward guidance

–For the euro, this could mean further losses against the dollar

By Nicholas Hastings

The euro looks as though it needs guidance from the European Central Bank more than ever.

At the moment, the single currency should be on the rise. Euro-zone manufacturing activity has picked up again, even
in some of the region’s weakest countries.

The latest data from China, one of the euro zone’s key trading partners, have lifted hopes that its economic slowdown
may be over.

And in the U.S., worries about what might happen if a missile attack is launched on Syria have helped increase
speculation that the Fed may choose to postpone any plans to start “tapering” its monetary policy later this month.

All of this should be playing into the euro’s hands and pushing the single currency higher against the dollar.

But it isn’t.

For the first time in a month, the single currency has fallen back below $1.32.

Some market watchers blame the slide on a end to repatriation flows that took place last month when investors were
worried about the sharp losses in emerging markets and decided to bring their money back home.

Others reckon it could be just a reaction the high level of speculative long positions that have built up in the
currency in recent weeks.

Or it could be another reason: a financial market that has now been convinced that, regardless of the strength of the
euro-zone economy, the ECB will stick to its forward guidance and keep interest rates low or even cut them further “for
an extended period of time.”

In other words, no matter how good the euro-zone economic data prove to be at the moment, the ECB will stick by its
guns.

This is hardly surprising given the upcoming risks associated with Germany’s elections, as well as talk that Greece
will soon need a third bailout to prevent a sovereign default.

On top of that there is the German constitutional court’s decision on the central bank’s outright monetary
transactions and whether their use is likely to be curbed. This could be key in removing some of the current investor
support for debtor nations and make a debt crisis resolution more difficult to achieve.

Elsewhere, while the ECB continues to keep financial markets as stable as possible by resisting any pressure to
tighten policy, the U.S. is still likely to start tapering this year, once the immediate tensions over Syria have
passed.

These tapering expectations are likely to intensify if the U.S. reports another improvement in its employment market
later this week.

For the euro this is likely to mean further losses against the dollar, especially if the ECB makes it clear that it is
sticking to its forward-guidance, at least for now.

(This is an opinion column by Nicholas Hastings, who is a Senior Correspondent in London for Dow Jones Newswires and
has written about foreign exchange for more than 20 years. He previously covered a variety of markets, including
equities, fixed income, commodities and energy. He can be contacted on +44-20-7842-9493, by email at nick.hastings@
dowjones.com or on Twitter @Nick_Hastings1)

  (END) Dow Jones Newswires
  09-04-130159ET
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