Forecast: No Hope for Euro in 2012?

One euro coinThe euro had a rough time since the recession in 2008. Some people even talked about disintegration of the shared 17-nation currency. Such talks receded in 2010, but returned in 2011, though there are not many analysts who believe in a collapse in the eurozone, at least in the near future. Unfortunately for those traders who want to be bullish on the euro there are not many reasons, if any, to be optimistic about the currency.

The credit crisis in European countries continues to threaten the integrity of the European Union and leaders of the EU have hard time to control it. In fact, many economists point out that some measures are making things even worse. Indebted nations continue to borrow more money for supporting their economies and, even after yields receded from the earlier surge to record levels, borrowing definitely isn’t a way out of debt. Economic growth could drag debt-plagued countries out of the credit trap, but here comes another obstacle: austerity. In theory, austerity measures should lead to lower spending and, as a result, less debt. In practice, experts think that tightening hurt already weak economies and make them to pile more debt on top of the existing one. The European Forecasting Network revised downwardly its outlook for the European economic growth and said that “the prospects for 2012 are bleak”.

Are there any signs that the situation may improve for the euro? Not many, in truth, but enough not to expect a straight way down. There are many economic indicators that show the economy of the EU isn’t in a very bad condition (though there are many reports that show the condition isn’t particularly good). Mario Draghi, President of the European Central Bank, said that there are sings of stabilization of economic activity at low levels. Even pessimistic forecasters are talking about a mild recession, not a full-fledged collapse of the economy.

Potential quit of Greece from the eurozone (not necessary the European Union) may prove beneficial for the euro as that would remove the main source of concerns for investors. Of course, withdrawal of Greece in case of a disorderly default wouldn’t be favorable for the common European currency and such default is very likely.

Some technical analysts say that there are layers of support for the euro. Indeed, the currency rebounded from the level of August 2010 and hasn’t yet reached the low it touched in June 2010.

Whatever positive factors play in favor of the euro, they aren’t likely to support the currency in the long run. The current rally of the euro doesn’t mean the downward pattern is broken, at least not in the medium- to longer-term. The inherently volatile nature of currency moves during times of uncertainty allows the currency to demonstrate violent swings to either side without breaking a general pattern.

Analysts offer various predictions for an average rate of the euro against the dollar in 2012. Mitul Kotecha from Econometer expects the rate of 1.26. Scotia Economics in its Foreign Exchange Outlook predicted 1.29 in the first quarter of 2012 and 1.25 in the fourth quarter. Euro Trading Trend provided an interesting forecast: the euro will actually rise to 1.3860 by February, but will slid to 1.3250 in March and lower to 1.25–1.26 later.
Forecast: No Hope for Euro in 2012? Forecast: No Hope for Euro in 2012? Reviewed by Sopheap Chhin on 4:20:00 PM Rating: 5

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