While the EUR/USD and EUR/JPY charts look fairly constructive at the present time, with technical resistances at 1.3080/85 and 121.50 respectively seen as important levels to further upside, the fundamental backdrop seems to me to be somewhat more nebulous. For sure sentiment has improved in recent days with global stock markets rallying, commodities starting to firm and the USD and JPY giving up ground as risk appetite returns. But two factors worry me and I think either, or both, could stifle the improved sentiment going forward.
Firstly China’s growth prospects for next year don’t look too healthy. While the World Bank recently cut its forecast for 2009 growth in China to 7.5%, many economists in the region are seemingly calling for demonstrably lower growth in the 4-5% region, as a slumping property market and weakening demand for Chinese exports take their toll. This does not bode well for global growth prospects next year.
The other factor which I think could inhibit improved sentiment is the chance of widespread social unrest in Europe. While the present unrest in Greece was triggered by the death of a young student, there is an underlying root cause behind the trouble, namely a growing disaffection among a rapidly increasing number of unemployed. With the European economy in dire straits, the number of unemployed is set to spiral, and it can’t be long before we see unrest in other European cities.
