Despite Strengthening Euro, The Eurozone Is Still at Risk

Online, June 11, 2013 (Newswire.com) - There is much debate regarding the fate of the euro-zone, and while its demise in unlikely there are many factors that will prevent its current strength from continuing. Though French President Francois Hollande declared the euro-zone crisis over in a recent trip to Japan, this thinking is largely political and not likely to be the case.

This month the euro has made significant gains against the US dollar appreciating around 3% against the greenback, however Corolla Financial analysts don't expect this trend to continue.

The strength of the euro-zone is being threatened by numerous factors. Most immediately, the German Constitutional Court is holding hearings on whether the European Central Bank's bond buying program goes beyond its mandate. Though a decision won't come until later this year, there is a possibility that a decision could be handed down that would have catastrophic effects on the euro-zone.

Almost one in four European youth are unemployed and long term unemployment is becoming an important concern.

Despite some economic progress, a widespread recession still persists, and governments are taking on debt at alarming rates to combat their fiscal problems.

Though the euro is likely here to stay, it will take many more years for the euro-zone to find the right balance to function more like a unified country than as individuals that share a currency. In the meantime, the euro will likely experience ups and downs before settling somewhere just north of the US dollar.

The current strength of the euro is caused by many factors, but none more than its need to maintain strength for its survival and the health of the global economy. Though most of the Eurozone would be better off without a unified currency in the short term, the long term outlook remains positive. It may take another 10 years for the benefits to be fully realized, but the euro is here to stay.

In the meantime investors should be weary of holding too much of their assets in euro. Corolla Financial analyst Adam Taylor believes that the euro will find parity with the dollar before the crisis is completely over. "The state of the euro-zone is precarious at best. Though there have been improvements, the strength of the currency just isn't sustainable. Parity with the dollar is not an unrealistic target for the euro within 2 years."

Taylor doesn't expect the euro rally to continue, and expects a correction inside $1.35. This may be a good time for investors to buy foreign equity and invest abroad, but in any case diversification of assets in today's world means currencies as well as classes.