Risks for EUR
The US government shutdown is now at the center of the market’s attention. However, there are other important factors which are now curtailing EUR buying versus USD:
- Italian political crisis. Prime Minister Letta has called for a confidence vote, which will take place tomorrow. Letta was forced to such step by Berlusconi’s attempt to bring down the government by pulling his ministers out of the coalition.
- The ECB may give another dovish message at Wednesday’s policy meeting continuing to signal that the central bank may ease policy if necessary to address an unwelcome tightening of financial conditions.
- Political uncertainty has also increased in Portugal with local election results showing a drubbing for the government.
Analysts at Bank of Tokyo Mitsubishi UFJ and PNP Paribas think that any EUR/USD buying on a US government shutdown is unlikely to be sustained.