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Euro closes below short term support

25/01/2019

As we noted last week the Euro (EURUSD) is starting to look increasingly vulnerable. The Euro managed to close below temporary support at 1.1350 and is now in the process of a mini retracement. This is not a reversal, this is simply some Friday profit-taking. In the interim we would not be surprised to see any rally up to 1.1375/1.1400, but would sell into these as there is only bad news to come. President Macron is struggling to contain the “Gilets Jaunes” protests at home, and his attempts at deflection with tough talk on Brexit are fooling no-one – he simply lacks any authority. Whilst the French protests are not quite Venezuela, it is difficult to see how the appetite for such displays are going to be reduced. What they do have in common with the extraordinary scenes in Venezuela is that neither are borne out of economic prosperity. Over in Germany, the IFO Expectations Index – a measure of business confidence indicating business projections for the next 6 months – missed market estimates by a large margin, registering 94.2 against an estimate of 97.0. With the  European Central Bank (ECB) finally admitting that the growth risks are now biased towards more negative figures we’d expect the rest of the markets to get the memo before too long. The only potential bright spot on the horizon for the Euro prospects will be if they can still persuade the UK to pay up the £39bn divorce settlement for Brexit, which, given Mrs May’s past record of caving in to everyone without hesitation, is not beyond the bounds of possibility.

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