• EUR/USD Rally
• Finland Ready For EZ Smack-Down
• That Elephant Is Still Squatting In The Room

As figures out from the European Union statistics office this morning show that trade volumes for the euro zone rose in the first half of the year, Finland has leapt out of left field  – hammer in hand – seemingly eager to drive a large nail into the euro’s coffin lid! Whilst forex traders saw the euro/dollar 1.2344 session low obtained ahead of the EMU’s surprisingly wider current account surplus, the pair rallied 40 pips to establish itself at 1.2374 as the trade balance data was released.

But no sooner had we digested this morning’s data showing exports from the currency bloc were up 8 percent from the same period in 2011, thereby highlighting the EZ’s dependence on external sources of growth as economic activity within the region stagnates, Finnish foreign minister, Erkki Tuomioja (pictured), has just given an interview to the Telegraph in which he reckons his country is in full preparation mode for the break-up of the euro zone. While this sort of rhetoric is hardly new, it certainly puts the dampeners on the currently supine markets’ likelihood of a tranquil summer weekend!

As Michael Hewson of CMC Markets commented: “Market complacency looks set to continue", pointing out that they continue to drift higher on expectations of the prospect of additional central bank easing. “The absence of any good news has failed to dampen expectations,” added Hewson. “If anything, it has reinforced the expectation that the authorities will take the necessary action to mitigate any problems in the coming weeks.”

Without question, the economic outlook in Europe remains utterly bleak. Markets certainly are placing an awful lot of store on ECB President Mario Draghi – now having been backed by Angela Merkel – being able to step back from the abyss. No wonder Finland’s Tuomioja, a veteran minister in one of the euro zone's remaining four triple-A-rated nations, has said something along the lines of a euro break up having the effect of making the EU stronger.

"It is not something that anybody is advocating in Finland,” said Tuomioja, “let alone the government. But we have to be prepared. The break-up of the euro does not mean the end of the European Union. It could make the EU function better.”

Look Out For The Elephant!

Finland, which has a veto that could be used to block any new bailout measures, has insisted on collateral from both Greece and Spain in exchange for rescue loans. Although Mr Tuomioja reiterated that Finland remains '100pc committed' to the euro, he nonetheless emphasised how the Nordic state is battening down the hatches for a full-blown currency crisis.

In summing up the situation, Simon Denham, MD of Capital Spreads, opines how Finland has, “…once again, pointed out that there actually is still an elephant in the room. The finance minister has stated in what used to be called ‘frank terms’ that his government does not trust the big four not to stitch up the smaller members. This is explosive stuff and one must hope that it is just posturing for his domestic audience.”

Meanwhile, Austria's chancellor, Werner Faymann, has spoken out against a break-up of the euro zone. He said the break-up of the euro area or the bankruptcy of a member would do more harm than good, and he can't support expelling a country. He added that it was necessary to take further steps to stabilise the euro area, including stricter bank supervision and further financial market regulation.

For the moment, the positive trade surplus data is continuing to support the rally it triggered earlier, with euro/dollar increasingly close to the 55-day MA, at 1.2395, and the 1.2400 psych level. At the time of writing, the pair is currently at the 1.2380 area, at new weekly highs, bouncing off the one month uptrend channel support line at 1.2268 and may well retest its 55 day moving average at 1.2395 while remaining above 1.2255, yesterday’s low.

Drew Hillier. Editor, ForexSpace.com