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Why is the Euro Rallying?
The euro has come along way since the end of June when it was trading below 1.20. Here are a few reasons why the EUR/USD has rallied:
1. Investors are Growing Less Nervous about the PIIGS -- Credit Default Spreads are narrowing
2. Weaker U.S. data has turned the market’s focus to problems in the U.S.
3. Strong dollar in Q2 puts the risk of weaker earnings reports -- U.S. earnings season begins next week
4. Major Short Squeeze -- IMM data shows that as of last Tuesday, there are still ALOT of short EUR/USD positions
5. Sufficient Demand for Spanish bonds
6. No Major Funding Disaster after the maturity of the ECB’s 1 year lending facility
7. ECB not expected to make any major announcements before Stress Test results
8. Market expects the ECB to announce stress test methodology