Wall Street Journal
December 27, 2011
The euro is expected to remain on the defensive during the final week of 2011, but a light European calendar and sparse holiday trading conditions should keep the common currency hemmed in its recent ranges.
The euro is poised to finish the year much where it began: whipsawed by Europe's debt tinderbox while holding to potentially flimsy support. Selling pressure has abated on Spanish and Italian government debt, at least briefly, although thin market conditions are exaggerating moves in both directions. Both countries remain likely candidates for downgrades of their sovereign-credit ratings, as do Germany and France—the 17-nation currency bloc's economic behemoths—a risk that will continue to put negative pressure on the euro.
After the European Central Bank offered €489.19 billion ($638.2 billion) to 523 banks last week, analysts will watch for signs that this fresh liquidity is being used to buy sovereign debt in the region's turbulent bond markets. Also on the week's radar screens: Spain's newly elected government will introduce a package of economic changes designed to alleviate fears about its solvency.