The euro takes a breather from its recent down trend against the dollar to recover some losses before stabilizing ahead of the “informal” European Union Summit on Wednesday. The euro has lost over 3 percent against the U.S. dollar this month. The recent rebound in the past two days may prove to be a brief technical correction.
A lot of attention will be paid to France’s push for euro bonds and if Germany will change its stance. German Chancellor Angela Merkel has consistently rejected the idea of a joint-issuance euro bond. New French Finance Minister Pierre Moscovici recently remarked that France would bring a call for euro zone bonds at Wednesday’s meeting. German Chancellor Angela Merkel said she won’t shy away from disagreeing with French President Francois Hollande at the summit.
However, the market’s fundamental assessment of the euro is not likely to change in the short term as concerns over Greece exiting the euro continue to weigh on the single currency. The key focus will be on Greece elections on June 17.
Also likely to weigh on euro direction will be the preliminary set of May’s euro zone PMI data this week as markets gauge the degree of regional slowdown to establish the extent to which it can affect deficit-reduction efforts and amplify credit-market stress.
Meanwhile, external factors besides Europe will affect euro, such as the ability of a speedier recovery in the US. While interpreting the impact of US economic data on sentiment, the likelihood of additional stimulus from the Federal Reserve (so-called QE3) is a critical consideration.