Eurogroup chief Jean-Claude Juncker warned on Tuesday that the euro's recent rally to a 10-month high poses a new threat to the Eurozone even as the region begins to exit the sovereign debt crisis.

The euro has surged 8% against the dollar in the last six months and yesterday managed to break through $1.34 for the first time since last February. Juncker reminded listeners at a conference in Luxembourg that he had commented last year that the single currency would ride out the crisis and insisted that the "the Eurozone has become more stable after a lot of effort."

However, the recovery in the euro poses a new threat to the region, according to the head of Eurozone finance ministers. "The euro foreign-exchange rate is dangerously high," Juncker said.

Just yesterday Germany reported slower-than-expected growth due precisely to a decrease in exports. A stronger euro makes Eurozone products more expensive for countries outside the group

Currency market reaction: The analysts weigh in

"For one, the Japanese currency unit (the Nikkei-225 fell by over 2% overnight) had been falling since early Tuesday morning after hitting long-term technical resistance at around the 120 yen level and accumulating large overbought readings. Following Juncker's remarks the currency's retreat continued, with the Euro/yen now down by 1.26% (and by a similar amount against the pound and a tad less versus the US dollar) and having gone into oversold territory on 1 hour charts," comment analysts at Digital Look.

In a similar vein, and for the very short-term, this is how technical analysts at Commerzbank see the current set-up: "the recent break through the 1.33085 high suggests unfinished business on the topside. It has introduced scope for a rally towards tough long term resistance at 1.3485/1.3560 this is the location of the 2012 high, a double Fibonacci retracement, the 200 week moving average and the 55 month moving average. We look for this to hold the topside and provoke failure."

Nevertheless, and when looking at to the mid-term it may pay to keep Market analyst Michael Hewson's, from CMC Markets, point of view: "Unfortunately this appears to be the price for the recent decline in Spanish and Italian bond yields, which have been highly correlated with the euro as pressure on the ability of the Spanish and Italian governments to sell their bonds has subsided. If yields continue to fall then we could well see further euro gains towards $1.40 which would ratchet up the problems once again in the weaker economies as they struggle to rebalance."



JM

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