The major problem with the euro is that it is a single currency for a disparate group of economies. One size does not fit all no matter what the hucksters tell you.
In this Bloomberg article Bundesbank head Jens Weidmann says
I believe that the exchange rate of the euro is broadly in line with fundamentals. You cannot really say that the euro is seriously overvalued.
He is a German, so he gives us a German perspective on the euro. This Euro Fair Value chart lends credence to his words:
Actually, Germany and Ireland have an undervalued euro. The only country who could claim that the euro reflects its economic fundamentals is Austria as the $1.35 exchange rate is not too far from today’s price of $1.336. The rest of the countries have a legitimate argument that the euro should be weaker.
This chart explains the reticence of the Germans to support a rate cut that would devalue the single currency. Germany is receiving an export boost due to the relatively weak euro while inflation remains low. A weaker euro would stoke inflation.
The article touts recovery in the eurozone, a common mainstream media meme since November
While the euro area’s recession deepened in the fourth quarter, there are signs the region is starting to recover.
The signs of recovery given to the reader are three months of improving consumer confidence and rising investor confidence since September. During any crisis, there will always be good news among the bad. In order to make a good prediction, one must separate the signal from the noise. Surveys about people’s feelings fall into the latter category. Prior to the worst economic downturn since the Great Depression, U.S. consumer confidence was high.
Here is the chart that matters for Europe:
The only country that is growing is Germany. The Eurozone as a whole is still contracting. Keep in mind that the periphery is contracting substantially, because it counteracts a nice rise in Germany’s PMI, which accounts for over a quarter of output.
Note France’s poor performance. I think France is weakening to the point that it will require its own devoted post soon.