The Eurozone Debt Crisis and Shrinking Economy Continues to Knock Global Investor Confidence

There are growing signs that the crisis of confidence in the Eurozone has assumed a new dimension. In particular, domestic and foreign investors seem to be steadily losing confidence in the Economic and Monetary Union, and so are increasingly looking for safe havens for their money outside the Eurozone.

For some weeks now, it has been apparent that capital is no longer simply flowing from the southern countries to the core countries of the Eurozone, particularly Germany. As the Euro continues to fall, imminent signs show that the Eurozone as a whole is experiencing a net outflow of capital. Whereas initially investors fled to the safety of the Eurozone’s core, now they are thought to be taking their capital out of the Eurozone altogether.

Contrary to the Euro, the Dollar has enjoyed gains which predominantly reflect the broad risk aversion stemming from rising concerns over the Eurozone alongside the stronger US data that have helped the recovery process. Volatility for the USD is likely to remain subdued this month as investors await further developments out of Europe and clarification from the Fed with regards to the possibility of additional easing measures.

In the UK, the BoE inflation report has suggested further easing due to thefiscal consolidation and tight credit conditions at home, as well as the difficulties in the Eurozone and a broader slowing in the world economy. The recession in the Eurozone is damaging demand for UK exports; a black cloud of uncertainty is hanging over investment; and the weakening Euro is a further obstacle to the much needed adjustment in the net trade position.

Today's Fundamentals

07:00 Germany EUR Consumer Price Index (MoM) (Jul) - Consensus predicts an increase to 0.4% from a previous figure of -0.1% which should be positive or bullish for the EUR.

07:00 Germany EUR Harmonised Index of Consumer Prices (MoM) (Jul) - An increased figure of 0.4% is expected from a previous figure of -0.2%, which should be positive or bullish for the EUR.

07:00 Germany Harmonised Index of Consumer Prices (YoY) (Jul) - Consensus forecasts the figure to remain unchanged at 2%, which should bring stability to the EUR.

07:00 Germany EUR Consumer Price Index (YoY) (Jul) – Thismeasures inflation and changes in purchasing trends. This figure is set to remain at 1.7% which should signal stability for the EUR.

07:45 France EUR Budget (Jun) – There are no predictions from consensus as the budget figure remains at €-69.6B which shows a balance deficit, therefore unveiling borrowing needs seen as negative (or bearish) for the EUR.

09:30 United Kingdom GBP PPI Core Output (YoY) n.s.a (Jul) - Expectations suggest a decrease to 1.7% from a previous figure of 2.0%, which should be positive or bullish for the GBP.

09:30 United Kingdom GBP Producer Price Index Output (YoY) n.s.a (Jul) - Predictions show a slight decrease to 2.0% from a previous figure of 2.3%, which should be negative or bearish for the GBP.

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