Scope for EUR to move lower
- Written by: Gary Howes
-
EUR strength in December exceeded the relationship with forward points that held through last year, and may well have been seasonally driven, as seasonal analysis shows strength in December is typical, followed by a reversal in January.
"There may be scope for a EUR/USD move down towards 1.35, judging by the relationship with forward points, though contracting peripheral spreads suggest the EUR is not likely to suffer major fundamental weakness in the short run," say Lloyds Bank Research.
Meanwhile, European numbers continued to show a continent that is relying on the German economy for the majority of its growth.
French manufacturing has contracted every month since February 2012 and continued to do so in December, posting a figure of 47.0 – the lowest reading since May 2013.
German, Italian and Spanish readings were all positive and above 50.0, while Greece’s hit a 52 month high; it still remains below the 50.0 level that denotes expansion however.
Movements in European debt markets were in focus yesterday as well following the Spanish and Italian PMI beats.
Both Spain’s and Italy’s 10yr bond yield fell below the 4% level yesterday with the spreads of their bonds over the German equivalent hitting the lowest levels since mid-2011.
A mixture of deflation and low liquidity can be blamed for this but it will be interesting to see whether rising US bond yields start to unpick this yield optimism in the Eurozone.
