EUR might retest Feb low of 1.08, GBP on the back foot - Westpac

Richard Franulovich, Research Analyst at Westpac, suggests that the EUR is on its way to a retest of the Feb 1.08 lows.

Key Quotes

“Terror attacks in the Zone playing into the hands of Eurosceptic forces, elevating political risks going into the Italian senate reform referendum (Oct 2016) and beyond (Dutch elections Mar 2017, France May 2017 and Germany Oct 2017). Strong prospects for concrete easing measures from the ECB in Sep, for example a formal extension of QE beyond March 2017, staff downgrades to 2017 GDP a likely trigger, likely weigh into late summer. Sep Fed hike odds look too low too (21%) given FOMC next week likely to sound more upbeat.

A multifaceted easing 4 August including conventional rate cuts and a restart of QE should leave GBP on the back foot. First surveys taking into account the full brunt of Brexit due in coming days and should add to downside GBP pressure (Markit PMI 22 July, CBI survey 25 July). A retest of the recent 1.2797 lows just a matter of time. M&A inflow will only slow the down move, not repeal it.”