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Portugal, Spain and Greece all seemed beset by problems in July, with political scandals in the first two and more bad economic news in the latter giving reason for investors to fear. However, as August has worn on we have been saved from any new problems in southern Europe, while economic figures from the single currency zone continue to get slightly better.
This has not yet had the desired impact on the euro, which continues to hover around $1.33 after decisively rejecting the $1.34 area at the end of last week. However, there are indications of a growing bullishness in the eurozone, with the spread between German and Spanish bonds narrowing to its smallest level since August 2011.
It now remains to be seen whether EUR/USD will attempt another move to break through $1.34; if this were to succeed we would be looking at a new six-month high for the currency pair, having seen it go all the way to $1.36 and above in the early part of the year.
There are, however, still problems that could derail any rally in EUR/USD. Chief among these is the abysmal unemployment rate in many southern European countries. In Greece the rate hit 27.6% during May, according to data released last week, with youth unemployment running at around 67%. Similar figures are to be seen in Portugal and Spain.
EUR/USD is at something of a crossroads; if weakness persists into the end of the month we could be looking at $1.32 in short order, and then $1.30 if $1.32 fails to hold. Europe has so far got away without another summer crisis, but that does not mean its troubles are over.