It’s been a head scratcher.
Why doesn’t the euro seem to care about the sovereign debt crisis affecting so many member states.
See, for example, this chart from Morgan Stanley showing how Spanish CDS and the Euro are diverging.
Ah, but that’s deceiving. The Euro only looks strong because it’s being compared to the US dollar!
Compared to the Swiss Franc, the euro is following Spanish CDS.
The dollar is so weak, it’s masking the euro’s weakness. Change the denominator to the Swiss Franc, and you can see the impact of the debt crisis.