Trade Wars and Italian Political Concerns Sees Eurozone Investor Confidence at October 2016 Lows

EUR Analysis and Talking Points

• Eurozone Sentix falls to the lowest level since October 2016
• Investor morale deteriorates amid concerns over US trade policies and Italian politics.

Trade Wars and Italian Politics Weigh on Investor Morale

Eurozone Sentix Investor Confidence declined for a 5th consecutive month to its lowest level since October 2016 to 9.3 in June, missing expectations of 18.4. The report stated that investor morale had been hit by concerns over 5 Star and League party taking power in Italy, alongside the US trade dispute. Investors assessment of current conditions and expectations reached the lowest level since August 2012.

Elsewhere, the Sentix survey for Germany also saw a decline for the 5th month in a row, as the economy faces headwinds from US tariffs on steel and aluminium imports which took effect on Friday. Subsequently, this raises the risk of a potentially slowing of growth within the Eurozone.

Despite the soft report, EURUSD saw a muted reaction, with price action likely to be dictated by the latest developments surrounding US trade protectionist policies and the reduction in Italian risk premium. Elsewhere, according to the latest CFTC data, there is no longer a significant net-long Euro position as there was less than two months ago. Speculators held +93K contracts through the week ended May 29, a 39% decline from the all-time high set during the week ended April 17 (+151.5K contracts). As such, positioning should no longer be considered the significant negative factor it once was for the Euro.

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