Europe To Remain Weak
Although leaving the benchmark interest rate at 0.75% early in the morning, the European Central Bank issued a dour note when it came time to assess the economic future of the European Union. In a post decision press conference, ECB President Mario Draghi noted that significant headwinds had placed pressure on a potential regional recovery. So much so that growth prospects for next year were forecasted lower, with the 17-member Union looking to either remain unchanged or contract slightly. Official estimates now lie between a 0.3% pace of growth and a 0.9% contraction in 2013.
Additionally, Draghi noted that “available statistics and survey indicators continue to signal further weakness in activity in the last quarter of the year”.
This isn’t seen as favorable for the Euro, which was expecting a slight recovery in the European Union next year – at a pace of 0.5%.
Monti Loses Support
Unfortunately, the Euro story doesn’t improve accompanying news that former Prime Minister Silvio Berlusconi led an abstention in a recent Italian Senate confidence vote taken earlier today. The scandal embroiled politician, and his People of Freedom party (PDL), symbolically walked out of an economic reform vote, leaving Prime Minister Mario Monti winning the decision by a narrower margin. Although the victory was an overwhelming 127 to 17 votes, the large amount of 23 abstentions is somewhat alarming. The result supports speculation that additional members may side with Berlusconi, who may ultimately renege on earlier promises and seek another term in office in the country’s elections slated for early next year.
If this happens, Monti may find it difficult to govern as his ties with both major parties, the People of Freedom and Democratic Party, have been notoriously volatile – and would only become worse on further protests led by Berlusconi.
The lowered GDP forecast is likely to stay with the Euro for the short term as it damages previous expectations of a potential 2013 recovery. The fundamental outlook, incidentally, works with the technical outlook as price action has seemingly failed to overcome the 1.3100 psychological round figure.
The doji candlestick confirms the failure, indicative of a turn in trend, particularly given the recent bullish wave off of the November 1.2659 swing low. As a result, look for initial support to emerge via the 1.2943 38.2% fib support figure before any further downside can be accomplished.
Source: FXTrek Intellicharts