Euro facing some political risk

It’s all about the euro at the moment as it continues to trade heavy with a cautious tone prevailing. 

There are a couple of events to keep an eye out for heading into the weekend, with Ukraine’s presidential election results and the European parliamentary vote also concluded. Uncertainty around how the results will be construed, particularly by Russia, is probably keeping the single currency constrained at the moment. EUR/USD has maintained a tight range around 1.365 all week with traders reluctant to bid the currency higher.

There is a huge sell the rumour trade going on at the moment and this puts the ECB at serious risk of underwhelming come June. The market is looking for decisive action from the ECB, action that will stimulate growth and at the same time keep the euro at bay. ECB members are currently split over the implications over a stronger exchange rate, but the general consensus seems to be it wants to see a weaker euro. As a result, should the ECB underwhelm, we could see the single currency bid higher and reverse swiftly as traders buy the fact.

Single currency testing support against the sterling

While EUR/USD is relatively sidelined, an interesting cross to watch at the moment is EUR/GBP. While Europe struggles with persistently disappointing data, the UK has been steadily showing signs of improvement. Yesterday the UK posted a much better-than-expected quarterly business investment reading, while a revised GDP reading was confirmed at +0.8%. EUR/GBP is threatening to break lower at the moment and a close below 0.809 will be key in the near term. The pair is not quite in oversold territory just yet and as a result could have further to fall. 

EUR/GBP
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