Europe's on the Mend

NEW YORK ( TheStreet) -- The U.S. jobs report dominated headlines last week, but a just-as-important event took place at the European Central Bank on July 4.

On that day, the ECB announced it will keep rates at record lows and clearly stated its future policy has a dovish bias. ECB President Mario Draghi wanted markets to know that unlike the central bank's U.S. peer, it was choosing further monetary easing.

The first chart below is of CurrencyShares Euro Trust ( FXE) over PowerShares DB US Dollar Index Bullish ( UUP).

As the Federal Reserve has moved toward a less accommodative stance, the dollar has strengthened. Most analysts now believe that the first steps toward reining in bond buying will take place at the September Fed meeting.

The dollar is now at its strongest levels of the year versus the euro, and if the Fed minutes, to be released on Wednesday, signal that the Fed board has turned mostly hawkish, then the dollar will strengthen even more.

The next chart is of iShares S&P Europe 350 Index ( IEV) over Vanguard Total World Stock Index ETF ( VT). European equities have come under pressure recently as political conflict has ensued in Portugal and growth in Germany has continued to wane.

German exports are reaching lows not seen since early 2009. Global economic weakness has weighed on output, and a generally weak Europe has left growth subdued, although a free fall in European assets is unlikely.

Political wrangling in Portugal and social unrest over austerity have weighed on European equities. Politicians of surrounding countries have criticized the Portuguese for their actions, and it looks as if some stability has returned after this past weekend of talks.

Stability and growth prospects look to be returning to the region, which should bode well for equity strength in the near future.

The last chart is of Global X FTSE Greece 20 ETF ( GREK) over MSCI Germany Index ( EWG).

The International Monetary Fund has announced that Greece has been approved for another round of foreign lending as it has been holding up its end of the deal.

A stronger Greece signals that calls for the breaking up of the euro may have subsided. Greece has recently shown strength versus German equities. That may be a double-edged sword.

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