EUR/USD: Euro Seen to Gain as Draghi Expresses Optimism

The Euro is believed to resume its gains alongside the US dollar today as European Central Bank President Mario Draghi suggested that the worst of the Euro Zone debt crisis has passed, leading to a more confident start to this year. Buoyant updates from the Euro Zone economy are also deemed to provide a lift for the single currency today.

At a speech in Frankfurt yesterday, ECB chief Mario Draghi recognized Europe’s efforts in its crisis fight last year, saying that the “darkest clouds” over the Euro area have subsided as leaders recognized that monetary union needs to be complemented by a financial, fiscal and economic union. He also defended the central bank’s bond-purchase plan, which has largely eased market fears of a Euro break-up in the financial markets. Draghi’s comments are the latest indications that the ECB chief, as well as other leaders, are increasingly confident that the three-year debt crisis has been contained and that the region can emerge from recession later this year. Nevertheless, he cautioned that the renewed confidence is also crucially built on expectations that progress will persist. Despite good progress, reform efforts need to be sustained, he expressed. On his remarks, the Euro is set to strengthen.

Indeed, economic figures are showing that the 17-nation bloc is slowly recovering. Yesterday, the ZEW think tank reported that German investor confidence soared to its highest level since before the Euro Zone crisis. The German ZEW sentiment index jumped from 6.9 points to 31.5 points in January, a 32-month high. The renewed rise in economic expectations suggests that financial market experts believe the economic outlook for Germany is seen to improve in the next six months. Reduced market uncertainty over the future of the Euro Zone led to the marked improvement in sentiment, likely prodding companies to proceed with investment plans that they had long put on hold. Likewise, activity gauges on tap for release tomorrow are seen to improve, with the slump in manufacturing and services deemed to have slowed further in January. Considering the optimism over the currency bloc, a long position favoring the Euro is recommended today.

Aviv N. Shapiro is a Senior Research Analyst and Business Development Officer for AlgosysFx.