Euro affected from many sides

Posted 24 October, 2018

With unclear changes during the Tuesday trading, the euro has resumed sliding in the mid-week. For now, the euro-to-US dollar exchange rate fell below 1.397, hitting a 2-month low in Europe, facing a number of factors.

The key pressure is still coming from the so-called Italian dead end. The EU has not approved the proposed budget draft, while the Italian government has refused to meet the EU negotiators half way and revise the budget. As a result, the situation will most likely keep escalation and EU stance can get tighter, which definitely plays against the euro.

The additional negative driver is strong demand for US dollar, which is gaining grounds almost everywhere today on anticipated PMI report in the USA. It is worth mentioning that similar report in the euro-area underwhelmed only twisting the knife. Specifically, the preliminary report showed that EU manufacturing PMI fell to 2-year bottom. The service sector PMI decreased to 53.3 in October (54.7 in September).

In this situation, the meeting of the European Central Bank slated for Friday is unlikely to bring some improvements. With persisting problems in Italy, the regional economy seems to slow down and the Brexit remains vague, so Mario Draghi will hardly manage to deliver the message that could stir euro bulls up. This means that the euro-to-US dollar rate stays completely bearish.

Falling below 1.14, the rate can decrease to the 1.1370-1.1360 handle that can be a provisional support before sliding to 1.1340.

Previous forecast

26 October, 2018 15:18

← Sterling likely to remain weak

The sterling is plunging vs the US dollar on Friday. For now, the currency has hit the bottom since early-September touching the 1.28-handle. Today, the market sees massive sterling selloffs. First of all, Theresa May's resignation is no longer so pressing one. Still, the no-deal Brexit issue still persists. In particular, the Irish border problem is yet to see the solution, while the UK economy seems to slow down. As a result, the sterling becomes less attractive with the players staying restless. Additional pressure comes for the general global market environment. The sterling is the risk asset and naturally depressed by the risk aversion in the market on the trade war and weaker oil.

Sterling likely to remain weak

Next forecast

23 October, 2018 15:58

Gold prices up driven by global risks →

Following the Monday slackening, gold prices have recovered Tuesday and even exceeded 1,235 line for the first time since mid-July. The current price stands at some 1,241. For now, gold seems to restore a connection with the demand for risk assets. Specifically, risks are again the focal point in the world after some break. As a result, the players are restocking on protective assets seeing persisting budget problems in Italy, uncertain Brexit and escalating tensions between Saudi Arabia and the Western World. Seeing the recent rebound above the 1,200 handle, the market is discussing possible signs of the price bottom. And now this guess gain more sense, as the global tension is unlikely to soften so far.

Gold prices up driven by global risks
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