Do Not Expect The Euro To Be "Derogated".

In recent days, the euro has fallen below the 1.120 mark against the US dollar, hitting another four year low.

However, as long as the euro debt crisis does not trigger the breakup of the euro zone, the euro will not "depreciate to the end". Although it may continue to weaken in the short term, the space for continued depreciation of the euro will be very limited in the future.

A few days ago, the Hungarian government, a member of a non euro zone member, warned its government deficits and public debt remained high. The euro fell to 1.120 against the dollar, hitting another four year low.

This year, the euro has fallen to several critical juncture, reflecting the deepening of the market's worries over the European sovereign debt crisis.

Then, where will the euro fall? Will the euro be "derogated"?

I believe that although the prospects for the evolution of the European debt crisis are not yet clear, the European debt crisis will not lead to the break-up of the euro zone, and the euro and the US dollar are unlikely to fall all the way to 1 to 1.

Indeed, there are rumors that the euro zone is about to collapse, but the eurozone will not break up because of the debt crisis.

First, the collapse of the euro zone is bad for the eurozone countries. The collapse of the European Union is likely to trigger major economic recession.

Take Germany as an example, the establishment of the euro zone has brought considerable economic benefits to Germany, an exporter.

Germany has striving for export share because its neighbours can not resist the export of commodities through currency devaluation.

Since the birth of the euro, the unit labor cost of the "Mediterranean club" has increased by about 25% compared with that of Germany, and Germany's competitiveness has been greatly enhanced.

At the same time, because Germany has a large number of Greek sovereign debt, despite its strong attitude, if abandoning the euro, it will lead to heavy losses caused by the choice of debt default.

Second, although the eurozone's debt situation looks serious, it may not be as bad as people think.

According to the EU Member States' data released by the European Union Statistics Bureau in 2009, the fiscal deficit of the 16 countries in the euro area and 27 countries in the EU accounted for 6.3% and 6.8% of the GDP respectively. At present, the US fiscal deficit is about 10% of GDP, far higher than the average level of 6% in the euro area.

More importantly, the eurozone's core member countries have a relatively sound financial position. Therefore, the European sovereign debt crisis has a great impact on Germany and France, and the possibility of evolving into a global debt crisis is also small.

As long as the eurozone members can cooperate and cooperate together, they will be able to solve the current European debt crisis.

In view of the current "Euro collapse" theory, which led to a disagreement against the euro, the euro group chairman Juncker stressed that "the euro is a reliable currency".

Meanwhile, French economic minister Christina Lagarde also believes that the position of the euro zone countries is very clear, that is, the determination to save the euro is very large.

It is believed that the euro zone will not be disintegrated as long as its political determination remains unchanged, based on the political decisions made by European governments.

From this point of view, the euro will still be widely recognized and developed as long as the euro zone does not disintegrate.

Therefore, although the euro has a short-term fluctuation, it will not "derogate from the bottom".

Indeed, since the spread and deterioration of the European debt crisis in January this year, the euro has fallen by more than 15% against the US dollar.

As a result, the market is concerned that the euro will continue to fall.

However, I believe that the euro may still go down in the short term, but it is less likely to fall to Euro 1 to 1.

This is because the devaluation of the euro and the strengthening of the US dollar have led to a decline in US export competitiveness and an impact on US export growth targets.

Although the United States believes that the European debt crisis has little impact on global growth, the Obama administration has "promoted exports and increased employment" as one of the most important goals of the year. Therefore, the fall of the euro will undoubtedly affect US exports, especially impeding the growth of export growth in 5 years.

In addition, the German economy in the first quarter of this year unexpectedly increased by 0.2%, of which exports and capital investment contributed significantly to economic growth.

In addition, industrial output in the euro area grew by 1.3% in March, much higher than 0.7% in February, and the fastest growth rate of services and manufacturing in Europe in the past three years.

This information has greatly improved the market's confidence in the European economy.

In fact, under the condition of sluggish domestic consumption, the continued decline of the euro has increased the competitiveness of European exports, and has created more convenient conditions for more European exports.

Of course, the European Union and IMF jointly launched a 750 billion euro package of rescue measures, greatly reducing the risk of liquidity crisis in the euro area.

It can be said that the difficulties faced by the euro area economy and some temporary problems will not constitute a key factor in the economic recovery.

We can be sure that in the next few quarters, if there is no excessive tightening of fiscal policy, the euro area economy is expected to grow positively, and the euro area will undergo a slow and gradual economic recovery.

According to the above analysis, the author predicts that the euro will continue to depreciate considerably in the future, and it is estimated that the euro will eventually stabilize at around 1:1.2 level against the US dollar.

In addition, given the current balance of trade in the euro area, the euro will continue to weaken even in the short term, but it will certainly not "derogate from the bottom".