STO Fundemental - EUR/USD and the Eurozone

The economic agenda was somewhat subdued yesterday given the North American public holidays, but this is set to pick up in the near term with data from both the UK and the US likely to provide some fresh direction. As is increasingly becoming the case we’ve also got that curve ball potential from Donald Trump which could skew sentiment.

The Traders’ View


We are seeing some profitable short interest on the S&P 500, with the prop desk making gains from yesterday’s fall in futures prices. Also sentiment is weighted against the Euro on a range of crosses.

Fundamentals - EUR/USD and the Eurozone


The Eurogroup may be hailing progress over the Greek debt management situation which has once again reared its head, but currency markets have been rather unmoved by this latest ‘progress’. EUR/USD has in fact lost ground over the last 24 hours, with a hawkish tone from one FOMC member driving the change although that lacklustre consumer confidence print out of the Eurozone has done little to help, either. With progress over the Greek situation now set to overlap with elections in France and The Netherlands, the timing of any deal is going to be further complicated and it’s difficult not to think that this could leave the common currency vulnerable to further sell-offs in the months ahead.

BoE chief Mark Carney is due to address the Treasury Select committee from 10am GMT this morning. Inflation is the subject in question so those two recent data releases – last Friday’s retail sales figure and yesterday’s industrial trends orders – will both be front of mind. The big question now is just how high will inflation go, and can this be ridden out without central bank intervention. Any hints that a rate hike may be necessary will inevitably drive the pound higher against many major crosses, although as we have seen before sustaining gains remains a challenge for GBP.

US manufacturing and services PMI prints are due for release at 2.45pm GMT and the risk here is that the recent story of economic expansion could stumble. Both figures are expected to be comfortably above the break even 50 mark, but we could see the pace of growth slowing and if equities are looking for a reason not to continue the charge higher as Wall Street returns from the long weekend break, this could be it. DOW futures are currently off around 50 points from yesterday’s highs and although the anticipation of Trump’s tax reform plan may lend some support, there’s certainly plenty of profit to be booked.

After threatening a consolidation phase, EUR/AUD is poised to resume its path lower with bullish calls over the health of the Australian economy helping define sentiment here. Comments by the RBA Governor at 9.30pm GMT will be under scrutiny next as these could prove instrumental in driving the pair out to almost four year lows.

This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.

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