Eurozone: Politics to the fore – Westpac

Tim Riddell, Research Analyst at Westpac, explains that it’s going to be a light upcoming week for data which will keep politics to the fore in the Eurozone.

Key Quotes

“Spain’s semi-autonomous Catalonia (20% of Spanish economy) continues to face off against the central government. A declaration of independence might be illegal, but could still trigger constitutional crises in Spain and EU. Catalonia would need to apply for EU membership and await entry into the Eurozone.”

“Brexit negotiations are faltering and EU- 27 may deem that the next stages (trade and cost) cannot proceed, increasing time pressures on Brexit.”

“Although the formation of the next CDUled German coalition should proceed without market concern (even if slowly), potential of Italian elections in H1 18 will raise populist concerns.”

“Despite political concerns, regional data remains strong and implies a very solid outcome for 2H’17. However, that is mostly priced into EUR. Dovish tapering is likely, suggesting that EUR/USD may be contained within a 1.15-1.20 range.”