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While all eyes are on Sterling, what of the Euro ?

16/01/2019

The historic events of last night in the House of Commons, the UK’s elected Lower House, pushed Sterling to the forefront of the FX market again, and given that those events continue today with a vote of No Confidence tabled by the opposition Labour Party, things aren’t going to quieten down anytime soon. Researchers had to go back to 1924 to find a margin of defeat of 100 votes, yet the current Prime Minister managed to lose by an unprecedented 230 votes. Although the Government will likely survive the No Confidence motion, Theresa May will be facing her Ides of March sooner rather than later. The problem has now been put squarely in the lap of the EU, and despite saying that there would be no other deal possible, the default legal position for the UK is now a No Deal Brexit. As this takes £39bn off the table for the EU, and with nothing but massaging of economic data standing between Germany & recession, the EU will need to find a new attitude and very quickly.  Against this background the Euro (EURUSD) is starting to look very flimsy. Unemployment is rising among Eurozone youth and if even Germany is on the brink (and the woes of Deutsche Bank are a bellwether for this), then the future is looking as shaky as a post-lunch Jean Claude Juncker. There should be temporary support around 1.1350 but if it closes below there we’d expect its journey back to par to begin.

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