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The Eurozone is widening the gap

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05/20/2013 | 05:31pm

Although strong since the beginning of spring, the single currency is limping while the ECB eases its monetary policy whereas the greenback shows serious signs of strength.

Despite the firmness of Brussels against Cyprus and the emergence of a new government in Italy, the Eurozone can not escape from the reality of a weak macroeconomic situation. After the IMF has revised downward its growth forecasts for the region, the ECB took advantage of an inflation which fell to 1.2%, to lower its main interest rate by a quarter points while facing an unemployment record (12.1%). Now reduced to 0.5%, a record low, the cost of money could even decrease more when the latest statistics indicate that the monetary union is sinking into recession.

In contrast, the U.S. economy grew by +2.5% year over year. The labor market is improving across the Atlantic, the unemployment rate falling to 7.5% in April, a level last seen in December 2008. Several officials now openly call for a gradual decrease in the assets purchases of the Federal Reserve in the coming months while the Dow Jones set new record highs. The Wall Street Journal even indicates that the American institution has already planned a slowdown of its liquidity injections. Such anticipations support the greenback, which was largely impacted by the expansionist policy of the central bank.

Technically, the trend is reversing and prices now seem able to attack their supports. If the Euro breaks 1.2818 in weekly closing price, the level of 1.2708 might be broken down and allow an acceleration towards USD 1.2432, unprecedented level since last summer.

Mathieu Burbau
© Zonebourse.com 2013
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