EUR/GBP Corrects Lower After Hitting 10 Year High

Pound attempts recovery after plummeting to decade low vs euro overnight

EUR/GBP is moving lower after striking a decade high overnight. 

Euro dips

The euro is under pressure on Monday as Italian politics and concerns over the health of the German economy take centre stage.

Italian politics are back under the spotlight as Deputy Prime Minister Matteo Salvini called for a snap general election citing differences between the coalition partners as irreparable. Right wing Mr Salvini is ahead in the polls largely thanks to his anti-immigration and “man of people position”, pushing for tax cuts despite Italy’s mounting tax pile. Whilst Salvini’s pledge for tax cuts is making him popular with the Italian electorate, the same cannot be said among euro traders. Any sign that Italy is willing to let its debt pile grow further out of control could be bad news for the euro.

Gloomy data last week from Germany, fuelled concerns that eurozone’s largest economy is heading for a recession.  Industrial production dropped by a more than expected -1.5% month on month in June. Annually, industrial production declined at the fastest pace in almost a decade. Meanwhile German exports slumped 8% yoy in June. The dismal data underscores the struggles that the German manufacturing sector is facing as global trade tensions escalate. Attention will turn squarely to German Q2 GDP data on Wednesday, which is expected to show a contraction.

Signs of a slowing German economy could increase investor expectations for the ECB to adopt a more dovish monetary policy in a bid to tackle the slowdown.

Strengthening pound could be short lived


The pound is having a rare up day at the start of the week after dipping to 10-year lows versus the euro overnight. No deal Brexit fears combined with the UK unexpectedly slipping into contraction in the second quarter. Ongoing Brexit uncertainty and a slowing global economy are clearly taking their toll on the UK economy dragging the pound lower. However, the pound was finding some relief from Brexit news flow on Monday. MP’s may well be on summer recess but that is not preventing them for exploring ways to prevent a no deal Brexit. A vote of no confidence by the opposition party or Parliament forcing an extension to Article 50 are two potential options for avoiding a no deal Brexit. However, the bottom line is that pro-Remainers are running short of options. Therefore, any move higher in the pound could be short lived.

EUR/GBP Levels to watch:
EUR/GBP moves lower after surpassing 0.9300 overnight, its lowest level in 10 years. The pair is down over 0.5% on the day. Immediate support can be seen at 0.9250. A break through here could open the doors to 0.9089 prior to 0.9050. On the upside resistance can be seen at 0.9324 before the pair targets 0.94. 



Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.