The euro is back in the spotlight following news yesterday that the German Industrial Production has fallen sharply. The German economy is the largest in the Eurozone and the market has been concerned over declining growth in recent months and 2018.
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December saw the single currency strengthen as investors witnessed a very confident ECB, European Central Bank, seeking to withdraw its QE, Quantitative Easing, plan. In sticking to their forecasts the ECB gained respect but the troubling economic data will raise concerns that perhaps the Central Bank acted in haste.
The worsening German economy could be indicative of a weaker Euro in the future. Investors have been carefully monitoring economic data in the region to best understand the direction the Eurozone economy is taking. When you look at some of the ongoing political concerns over France with Macrons popularity at low levels, I feel it is right to question for how long the euro can stay strong.
Yesterday Italy’s governing party 5-Star, reached out to the yellow vest movement in France, encouraging the gilets jaunes to ‘not give up’. Of course political uncertainty is not unique to Europe, Brexit and Trump are clear examples elsewhere. However these recent developments highlight potential concern for the market when valuing the euro.
Today is Unemployment data for the Eurozone at 10am and tomorrow the latest minutes from the December ECB meeting at 13.30. It will be interesting to learn more behind the decision making from the Central Bank and it might be a market mover if investors feel there has is a mismatch between policy and economic reality.
Despite the euro finding itself in the firing line as economic and political concerns mount, the Eurozone will struggle to make itself as uncertain as the UK. Sterling seems likely to find itself in hot water although the key news will be the vote next week
The next direction on the pairing seems destined to be directly linked to the outcome of the vote. A positive reception to the deal would see the pound rise, the 1.13-1.14 level might be possible. However, any bad news which might open the door to a no-deal Brexit and would see the pound suffer. Whilst much of the bad news is priced in, there is still I feel, potential for it to get worse.
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