Euro Rises Against Dollar on Strong Performance of Germany and Italy

The euro made gains against its arch rival, the U.S. dollar, on Friday, following good news from Germany and Italy. At the moment, the euro is trading 0.15% above yesterday's close at $1.4260. At the same time, the euro retreated against the Japanese yen, losing 0.2% of its value and trading at ¥114.56. To start with an update on the Greek crisis, the Greek government reached an agreement with the EU and the IMF yesterday on an additional €120 billion assistance package. Markets did not get too enthusiastic about the deal, however, since the government still has to pass painful cuts through the parliament next week. With the opposition seemingly not willing to provide its support and increasing dissatisfaction among the ruling Socialists, this remains a very difficult task. If the government does not pass these cuts, the EU and the IMF will withdraw its financial support for the troubled country, ultimately sending Greece into bankruptcy. The latest deal between the government and the IMF might be better interpreted just as an international financial community's encouragement to the Greek government to keep pursuing its reforms. The euro benefited from the strong data coming out of Germany and Italy. In Germany, business climate improved unexpectedly in May. According to the Cesifo data, Germany's ifo business climate index rose from 114.2 in April to 114.5 in May. Most analysts had predicted a fall to 113.4. Germany is the largest European economy and at the moment one of its strongest economies. Due to its shear size and current strength, the German economy has been driving the recovery in other parts of Europe as well. Recently, Ireland has returned to growth in the March quarter due to rising exports, which grew by massive 20.6% on an annual basis. As a result, good news from Germany will be interpreted as good news for other European countries as well. France, the Eurozone's second largest economy, posted less impressive results today, as its consumer confidence deteriorated slightly. According to Insee, France's consumer confidence fell from 84 in May to 83 in June. The fall was widely predicted, however. France's economy has also been strong coming out of the financial crisis, though not as strong as the German economy. Along with its eastern neighbor, France has been the locomotive of the Eurozone recovery and signs of weakness in its economy will not sit well with traders. More encouraging news are coming from Italy, where retail sales unexpectedly rose. The Istat data shows Italy's retail sales rose (month-over-month) from -0.2% in March to 0.4% in April, when most analysts had predicted the April retail sales to be 0.1% below the March level. Unlike Germany and France, Italy has been seen as one of the weaker members of the Eurozone. Some analysts feared it might be the next in the line, after Spain, to ask for the financial assistance from the EU and the IMF. The latest data will provide some relief to traders and persuade some of them that the troubled Italian economy might be turning the corner. Spain has managed to produce some good news today as well. The recently released data showed that the Spanish producer price index fell in May to 6.7% from 7.3% in April. The European Central Bank is under increasing pressure to raise its interest rates, maybe as soon as July, worried by high inflation. The recent data from Spain might provide another evidence that inflation in the Eurozone is coming down by itself. This would mean that there is no reason to raise interest rates. Rising interest rates might have a devastating effect on the debt-ridden Eurozone periphery, since the cost of borrowing will be higher. The ECB will have to balance carefully between the needs of the fast growing European center and its troubled periphery. Traders who believe the recent news of an improvement in economic performance of major European economies, as well as signs of hope in a Greek agreement, will provided much needed boost for the troubled Eurozone countries like Ireland and Portugal. With the Eurozone debt crisis under control, the euro should march forward. Traders who find appeal in such a scenario will be interested in the ProShares Ultra Euro ETF ULE and the WisdomTree Dreyfus Euro Fund EU. Other traders will not be convinced that international support will be enough for the Greek government to push trough painful and unpopular austerity cuts. With Greece approaching its D-Day, which might result in the Greek default, some traders will be keeping their distance from the European currency. As a result, these traders might find appeal in the Market Vectors Double Short Euro ETN DRR and the ProShares UltraShort Euro ETF EUO.