The Euro looks set to end the month on the back foot as key inflation data as well as the latest GDP readings from Spain and Germany once again came out below market expectations which further justifies investor caution going into 2019.

Currency Pair% Change in 7 daysDifference on £200,000
GBPEUR1.3%€3,000 EUR
Euro falls as Eurozone economic outlook weakens

It will certainly be interesting to see if these levels filter through to the Eurozone’s Consumer Price Index and Producer Price Index releases on Friday which will likely hold more weight with traded volumes back to higher levels after the festive period.

Inflation will remain a key area of focus for the markets with the European Central Bank highlighting the slow down back at the start of the month. If the euro is to sustainably rekindle investor appetite throughout 2019, inflation levels might need a shot in the arm soon, otherwise it is hard to see how the markets will buy into the ECB’s decision to wind back its financial stimulus program and follow through on its promises for an interest rate hike.

If the numbers were indeed to follow on from last week’s releases, there could be an argument to suggest the euro will fall further, making it cheaper to buy.

European elections the main focus for the Euro in 2019

Looking longer term, I feel the European Elections set for May could prove pivotal for the single currency’s value and could well be a major market driver throughout the first and second quarter of 2019.

With Catalonia’s push for independence, anti-EU Matteo Salvini’s rise to power in Italy and indeed the protests we have seen in France since the start of the month, it is hard to see how the pro EU forces will walk through with flying colours as has so often been the case since the 1970s.

Divisions at this level will make the passing of new legislation all the more difficult as it will be much harder to gain a majority with such polar viewpoints potentially being brought to the table.

The European banking reform being peddled in particular by Macron (France) and Merkel (Germany) has arguably been central to much of the single currency’s impressive gains on the currency market since the start of 2017.

Reforms like this will certainly be brought into question should populist figureheads like Salvini find himself higher up the ladder, which could in turn pile pressure on the single currency’s value, something to consider if you are holding onto euros and are considering your options going into the new year.

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