EUR: In the doldrums – ING

The morning starts with much focus on German state elections. This is the first state election win for an extreme right-wing party since the Second World War, ING’s FX strategist Chris Turner notes.

The 1.1040 support is under threat of breaching

“The main fall-out, however, will be felt by the very poor results of the ruling federal coalition and whether they have any plans to boost spending into federal elections next year. None are expected, which leaves the German economy in a malaise as the manufacturing sector continues to stagnate. That should be confirmed today with another round of weak manufacturing PMIs across Europe – which have already seen the Dutch PMI drop this morning.” 

“With August eurozone inflation data surprising on the downside, the ECB has a green light to cut rates 25bp at its 12 September rate meeting. However, two-year EUR:USD interest rate swap differentials are still trading inside of 100bp and support EUR/USD trading around 1.10/1.11. For today, let's see whether intra-day support at 1.1040 can hold. If not, the case builds further that EUR/USD remains a 1.05-1.11 story until further notice.”