View from London: Euro Now the Alternative to US Dollar

09/22/2017 2:45 am EST

Focus: COMMODITIES

Robert Savage

Partner & CEO, CCTrack Solutions

The uptrend in the EUR has held and the next risk is a new high – whether because of the Merkel re-election or because of doubts about U.S. growth and rates – or a bit of both., writes Bob Savage, CEO of Track Research in his Friday commentary.


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Leaders give vision to their nations greater ambitions – some call it the long view – but for traders this isn’t so helpful while investors just want the big story – that is the problem of the day with geopolitics again the focus in Asia and despite key economic reports and a flurry of ECB/Fed speakers today, most expect that to continue as the central driver of risk for markets into this weekend’s German and New Zealand elections.

The euro (EUR/USD) leads the USD lower, bonds are mixed, equities mostly lower.

Also, throw in that talk of a snap general election in Japan now floats a date for October 22 and you have a vision party ahead. There are two key stories that balance out overnight. On one hand is the threat from North Korea to detonate a hydrogen bomb over the Pacific, and on the other, the super strong flash PMI reports from Europe.


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The stronger growth in Europe means ECB Draghi will have a harder time not following the FOMC and tapering.

The tie-breaker will go to EU politics, as UK PM May gives her Brexit speech in Florence – leaving that to be a vision event where success has been defined as restarting EU talks and uniting her own Conservative Party divisions.

The UK press expects here to seek a 2-year transition period after 2019 and also to pledge to strengthen the legal protections for the 3 million EU citizens living in the UK.

Paying into the EU budget during the transition is what the market expects and wants to hear for the GBP rally to continue.

While all that seems obviously boring, the devil is in the details, with the British pound (GBP/EUR) rally stalled today and EUR gains notable even as Draghi talks about youth unemployment.

For anyone looking beyond the FOMC rate hike risks for a driver in USD, the story today is the EUR as the alternative to the USD.

The uptrend in the EUR has held and the next risk is a new high – whether because of the Merkel re-election or because of doubts about U.S. growth and rates – or a bit of both. The vision thing is going to dominate market attention whether from the UK or the U.S.

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