Morning Commentary: Euro – Taking it on the Chin Today

Foreign Exchange - Morning Commentary

Euro – Taking it on the Chin Today

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Alan Rose
Alan Rose
Foreign Exchange Head Trader
The euro and many other European currencies are much weaker today as a one-two punch of economic and financial news undermined sentiment. Eurozone consumer confidence fell for the ninth straight month after peaking in January at 114.90 as today’s result was once again below consensus estimates of 111.2; the index came in at 110.9. In addition, French consumer confidence fell to a two-year low and German business confidence also weakened.
Overlaid on top of this weak data was a budgetary surprise from the newly formed Italian government. Over the past week, stories had been coming out about a compromise budget at or below a 2% deficit which was seen as a positive for both the coalition government and the euro. Today, at nearly the very last minute, the financially conservative part of the coalition caved and a new compromise was reached at a 2.4% budget deficit.
Italian equities and bonds have both been hit today on the budgetary news which has hurt euro sentiment. That, combined with the weak consumer confidence data and an already weakening euro after the Fed announcement, was enough to squeeze out long euro positions which dragged down many other European currencies. That being said, the euro, while weaker today, still remains within the same broad consolidative range over the past month. We continue to expect the foreign exchange market to continue to consolidate and range trade with short cycle movements within that range.
  • New Zealand kept interest rates unchanged at 1.75% as expected. Interest rates have been unchanged since the last rate cut of 25 bps in September 2016.
  • U.S. Durable Goods orders for August came in much stronger than expected at 4.5% against consensus estimates of 2.0%. Subtracting out the transportation component, durable goods orders only rose 0.1% which was below consensus. In addition, U.S. final GDP for Q2 came in at 4.2%. U.S. interest rates are fractionally higher.
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