There are growing signs that the Eurozone might be shifting away from its program of austerity. If that does prove to be the case, it is likely to be very supportive for risk currencies generally and risk assets such as commodities and equities.
Cutting government spending was meant to make Eurozone countries balance their books, but has instead plunged a number of them into near permanent depression conditions raising the prospect of social unrest, eventual debt defaults and an exit from the EUR.
France, gaining a two-year reprieve to bring its budget deficit under 3% of GDP, is a potentially import shift toward unwinding the austerity experiment. It's true France never took austerity particularly seriously when it came to applying at home, but it is a leading Eurozone member and it's a shift that senior European Commission officials appear to support.
Soaring Euro-sceptic sentiment, no longer just confined to the U.K., is clearly concentrating minds in the Eurozone as well. Left to fester it could destroy the Eurozone.
More EUR/USD gains on economic recovery hopes?
If the Eurozone is seriously moving toward 'austerity light' or even 'austerity delayed' then it could foster hopes of a return to economic growth in the region – that's if sovereign bond markets buy the rationale of growth equalling better creditworthiness. This would certainly be supportive of currencies such as GBP, CHF and SEK vs. USD as the fortunes of the economies of the U.K., Switzerland and Sweden are closely tied to those of the Eurozone.
But even the EUR could move higher as investors place bets on a return to economic growth in the region's struggling economies and look toward convergence, which should strengthen faith in the single currency. But there is still a long way to go.
...but austerity still has supporters
It is by no means certain that such a policy change will happen quickly. The European Central Bank is deeply committed to fiscal consolidation and any sign of back sliding on that front could see it being less supportive in terms of monetary policy.
Then there's Germany, the keenest advocate of austerity and now indisputably Europe's most powerful country, even France can hardly claim to be an equal partner any more in the Eurozone, not even politically. Although there have been some signs that Germany is softening its stance on austerity, it is unlikely to go along with a major change in its position until at least after its elections in September or unless it too becomes baldy infected with Europe's recession bug.