The euro has weakened considerably versus the US dollar this year and is currently testing support levels reached just a few months ago. Our concern is that there may be further weakness ahead as economic activity continue to be sluggish on the Continent – the key German economic engine appears to have stalled as the Bundesbank expects Q3 to exhibit zero growth although officials expect that to be temporary. Consensus forecasts (the dotted line on the chart below) may catch up to current prices placing further downward pressure on the currency. This is happening at a time when the ECB has indicated that it will begin to end quantitative easing exercises towards the end of the year.
