Week in FX Europe – The EURO Has Not Stumbled, It's Fallen Hard

The EUR has been hurt more by the LRTO2 payback schedule letdown rather than any event risk concerns that could possible transpire with this weekend's Italian election outcome. The next wave of the EUR correction lower may have begun now that a smaller percentage of Euro banks have confirmed a reduced repayment schedule. Coupled with a plethora of Euro negative data this week has managed to punish the single currency and shave off close to –2% from its midweek point.

The reduced nominal repayment amount has so far succeeded in creating a negative perception for the fledgling currency. Bund yield changes are doing the same thing, especially around the 2-year bucket (+0.125%) were German yields have plummeted when compared with 2's in the US (+0.25%). It was only last month that German similar maturities were trading at a premium to their US counterparts. The dynamics are swiftly changing for the EUR. Trading below 1.31 by early next week is a distinct...