Optimism about some better-than-expected economic data from Europe is likely to be short-lived and the euro and European stocks will remain under pressure.
As investors will again turn their attention to the fact that the euro zone's debt problems are far from over, analysts told CNBC.com.
The euro [EUR=X 1.2753 0.0018 (+0.14%) ] rose for the first time in three trading sessions on Tuesday and European stocks hit a five-month high on a combination of Chinese and European data, but the gains may be just temporary, according to analysts.
"I think the euro is in a down move. I think all the fundamentals about the euro land are still on topic, nothing is solved," Felix Adam, a currencies analyst at ACT Currency Partners in Zurich said in a telephone interview. "In the short term we have some good news."
On Tuesday, German investor sentiment posted its biggest jump ever, to -21.6 from -53.8, and yields in an auction of Spanish T-bills halved, prompting a rise in European stocks and in the euro.
But Ben May, European economist at Capital Economics, noted that Germany's closely-watched ZEW economic survey had been conducted before the euro zone sovereign rating downgrades by Standard & Poor's late on Friday.
"I think the thing to bear in mind was that the [ZEW survey] headline was still in the negative territory. In that sense it's still not painting an encouraging picture," May told CNBC.com.
Adam pointed out that the euro has to face its first crisis in its short history and European leaders do not seem able to deal with it as efficiently as policymakers in the US have dealt with the financial crisis.
"Some countries are really not in good shape and this is a new situation… maybe America is better at managing crises because they have a more efficient administration," he said. "Definitely something has changed in the euro land."
Concerns 'Will Inevitably Rumble On'
Despite the sharp fall in short-term yields, "concerns about the debt crisis will inevitably rumble on," May said.
"Our view is that there are still a lot of problems in Spain and Italy and that concerns about their growth prospects will intensify," he added.
Markets work well because "there so much liquidity" in the US and Europe, and this is also why yields in auctions of short-term debt held by troubled euro zone countries have been coming down, according to Adam.
"At the moment all the action they [the European Central Bank] take is put money in the markets to make everybody happy but I do not see how this solves issues in the long-term," Adam said.
"Greece is not solved, Spain is not solved… give them a month or two and there is more bad news around the corner," he added.
Source CNBC
