Correction In The EUR; Focus On The USD

Correction of the euro is ongoing. This trend is associated with changes in investors’ priorities; macro-statistics, released recently, was also disappointing for the “bulls.” Long-expected rollback keeps going. Situation is tense and complicated. Investors’ interest in the European currency continues to decrease.

The fate of Greece is being decided presently. Future development of economic crisis will depend on the resolution of this problem. Therefore, investors have focused attention on the USA where issue of the public debt has been raised again. Congressional Budget Office has issued a report which says that country’s debt will be twice as big as value of GDP in the next 25 years. Such conclusion was based on the current fiscal policy which contains huge number of benefits, introduced by George Bush-Junior.

U.S. national debt does not cause big concern. Actually there are some concerns that the debt is increasing, however government is working actively in this direction. If you make a comparison with other countries, the U.S. national debt does not represent a global problem. Debt of Greece amounted to 160% and is not getting smaller. Despite advanced economic development of Japan, the country is deep in debt which has already exceeded 200% of GDP.

Therefore, overall state of affairs is not the best. European crisis continues to rage. It is quite probable that Greece will discontinue membership in European Union in the near future, which will trigger a new surge of crisis. Officials continue to insist that preparations are being made for different prospects of further developments. It is difficult to predict future. Tension in Europe will obviously affect other countries. Financial regulators try to keep balance between interest rates and the rate of inflation, however this cannot last forever. Neither U.S. Federal Reserve, nor ECB has made new solutions. Therefore, only few people believe in their constantly optimistic forecasts.

At the last press conference the ECB continued to defend its positions. The rate remained at the extremely low level of 1%. At the same time the Bank announced refinancing of the old rates in an unlimited level. This statement caused some excitement in the market despite negative macro-economic news.

As for the GDP in European area, second estimate for Q1 showed that GDP remained at the previous level within a month. However the index was reduced from 0.0% to -0.1% q/q. Sharp decline was recorded in the industrial sector of Germany again. Results amounted to 2.2% on monthly basis against growth of 2.8% a month earlier. Experts spoke about deterioration of the situation, but the real situation was worse than any predictions. The most important American information will be published at the end of the week, as usual.