What’s amazing is how many times the sentiment has swung back and forth on the whole Europe vs. USA question, regarding the economy.
For most of 2009 it was all Europe all the time. Then through the first half of 2010, everyone was negative on Europe. Then the US data started coming in weak — smack dab in the middle of summer — right around the time Europe seemed to be cleaning up its mess, and the bulls favoured Europe again.
And now once again it seems to be swinging the other way.
Europe is back to putting out fires, and, look at that, US data is coming in stronger again.
The euro hasn’t made any violent moves lately, but if the US economy keeps “surprising” to the upside, then the dollar will likely rally against the euro. This chart from Morgan Stanley tells the story:
Photo: Morgan Stanley
What’s funny, too, is that this chart came out just 3 days ago, when Morgan Stanleys said:
While the US has suffered a big negative growth surprise, euro-zone activity has held up fairly well. It is likely that this will weaken at some point, but so far we continue to see a gap between strong manufacturing and softer domestic demand. The most recent data have supported this, with not only German and Belgian business confidence remaining solid, but Italian business confidence also rising this week. Meanwhile, German retail sales have softened, and unemployment fell by less than expected. Our relative growth surprise index reveals the extent to which the euro area has outperformed and is suggestive that the EUR/USD exchange rate could rise further (see Exhibit 2).
Is it already time to change that?
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