Euro set to decline further due to Spain and weakness of the economy

Andy Scott, premier account manager at foreign currency exchange brokers HiFX, comments: "The Euro had seen a strong recovery over the last few weeks following the ECB's announcement and the German court decision on the country's involvement in the European Stability Mechanism. It reached a 4-month high against the Dollar and even managed to rally against the Swiss Franc.

"Since those peaks last week, the single currency has declined more than 2% against the Dollar and the Pound, and more than 3% against the Japanese Yen. The reasons for the sharp reversal in sentiment towards the Euro, are Spain's apparent reluctance to request a credit line from its neighbours that would allow the ECB to act, and the data from the 17-member block continues to point to a deterioration of confidence and activity.

"As we look forward, there doesn't appear to be a reason to become more bullish towards the Euro. The past few years have proven that individual nations will pursue their own best interests until forced to take the action that is in the best interest of the euro zone as a whole. So Spain will no doubt postpone requesting aid until the last possible moment which will keep the debt discussions at the top of the EU agenda, instead of politicians being able to focus on the economy which has been badly damaged by the on-going crisis over the last few years. The lack of political union continues to prove the biggest hurdle to overcoming the debt crisis and all of the grand plans such as the banking union are included in this too. 

"Our assessment and forecast for EUR/USD is that having surged from its 1.20 base, it seems to be suffering from vertigo above 1.30 and therefore arguably may settle back towards the 1.2500 area by year end. GBP/EUR continues to pivot the 1.2500 area and as long as large question marks loom over Europe, arguably on the upper side of this pivot level."