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EURUSD under pressure

By David Morrison  |  24/10/2018 14:45
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The euro has come under increasing downside pressure this week and had another lurch lower this morning
 
There’s been a very obvious risk-off move in financial markets thanks to some earnings disappointments, US/China trade concerns, the European Commission’s outright rejection of Italy’s budget, worries over Saudi Arabian trade and future investment following the murder of Jamal Khashoggi and after President Trump warned the US will bolster its nuclear arsenal after ending its nuclear arms treaty with Russia. All this comes against a background of tighter monetary policy, from the Federal Reserve in particular, and concerns over the outlook for global growth.
 
Euro zone data disappoints
 
On the latter score, this morning brought the release of Flash Manufacturing and Services PMIs from France, Germany and the Euro zone. With the exception of French Flash Services these were disappointing and provided further evidence that the economic outlook for the Euro zone remains uncertain to say the least. This raises the prospect that the European Central Bank (ECB) may decide to extend its Asset Purchase Programme beyond the year-end, particularly if there’s any sign that inflation is unable to keep on pushing up towards the ECB’s sub-2% inflation target. Market participants will pay very close attention to ECB President Mario Draghi’s press conference tomorrow afternoon which follows on from the central bank’s rate decision.
 
Italian budget rejected
 

The euro sold off sharply in the wake of this morning’s poor data. Investors continue to lighten up on their holdings of euros ahead of the ECB monetary policy meeting, but also in response to the coming clash between the European Commission and Italy’s new coalition government. Italy’s leaders have made it clear that they will not renege on their various election promises, all of which require higher levels of spending. Meanwhile, the European Commission is adamant that the Italian budget deficit needs to come down, and looks as if it is prepared to push back against Italy’s budget proposals.
 
Euro slumps
 
The EURUSD slumped back below 1.1400 following this morning’s European data dump, hitting its lowest level in two months. If it fails to bounce back above this level by the end of the week, then further losses look likely. The first major downside target is the August low of 1.1300. But a break below here raises speculation of more extensive losses as euro bears hope for a retest of the December 2016 lows around 1.0300.
 
 
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