The Euro strengthened against the US dollar but economic data continues to take a turn for the worse. German consumer confidence fell to the lowest level in 5 years as income expectations plummet. Germany is the largest country within the Eurozone and we are beginning to see broad based weakness. It should just be a matter of time before consumer spending which jumped 1.3 percent in the month May starts to turn negative as well. Retail sales are due for release over the next week. The US economy is still in trouble, but this “new” deterioration in the Eurozone will only accelerate. Continual weakness in Eurozone economic data will not only cap the recovery in the Euro, but also help lead the US dollar higher. All of the high yielding currencies have fallen significantly against the US dollar over the past week. It makes you wonder if the Eurozone economy is in worse shape than Australia or Canada, why has the drop been so limited. The answer is that it may just be a matter of time before the EUR/USD comes in balance with the rest of the market. French producer prices are the only piece of Eurozone economic data on the calendar tomorrow that is of any consequence. Switzerland will be releasing the UBS consumption indicator – weaker numbers are expected, but the Swiss economy is still faring better than many of its G10 counterparts.
