Saturday, February 20, 2010

A Quick Look at Euro Weakness Fallout

In the wake of the collapsing euro (top chart), we see a potential upside breakout in the price of oil denominated in euros (bottom chart; USO/FXE).

Rising oil prices for euroland would contribute an additional headwind to economic growth. I notice that European stocks (VGK) have bounced only modestly this past week after hitting multimonth lows. Year-to-date, the S&P 500 Index (SPY) is down less than 1%, but VGK is down nearly 6%.


Chris said...

Not too sure that currency weakness is why european shares are down vs. the S&P.

Europe consumes per capita about 50% less oil than the USA, so they are not exposed to oil price volatility as much as the USA.

Also, doesn't a lower euro help european exporters?

madi said...

Perhaps, the uncertainty of the size of the debt outlook among the PIIGS and the fiscal interdependence created by the euro has made investors in European markets hesitant.

Thanks, Brett, for the forum.
- madi