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What’s Behind Friday’s ‘Crazy’ Euro Collapse

Lots of things, probably.

Donald Trump was right about one thing on Friday – the euro did “drop against the dollar like crazy”.

The amusing thing is, the bottom didn’t really fall out for the common currency until well after the president’s latest FX tweet, which found Trump lamenting the strong greenback and demanding Fed cuts.

About an hour later, the euro collapsed amid options expiries, month-end flows and, of course, thin summer markets, ahead of a weekend that’s littered with event risk from tariff hikes to Hong Kong protests.

At 1.0967, the euro is the weakest against the greenback since May of 2017, the last time it was below 1.10. It likely didn’t help that news flow out of Italy suggested Five Star and the Democrats might have hit a snag in talks to establish a coalition that would avert new elections. The assumption that deposed PM Conte will preside over a new tie-up helped drive 10-year Italian yields below 1% this week, but Friday’s headlines suggest there are still some “wrinkles” to iron out.

EURUSD is down 1.4% for the week, and around 0.8% for the month. The broad dollar is sitting near a two-year high.

Earlier in the session, the latest CPI data showed inflation in the euro-area is still parked at 1%, a mile away from the ECB’s target. Sabine Lautenschlaeger joined a chorus of ECB hawks suggesting that a restart to APP isn’t necessary. 

As Bloomberg notes, the euro “tripped barriers at 1.1000 but an additional ~EU1.8b of strikes at that level roll Monday”. EURJPY dove to new lows for the year.

There was also some speculation that Trump’s tweets suggest trade talks between Washington and Brussels aren’t going swimmingly, which wouldn’t exactly be surprising. Other chatter cites possible risk aversion tied to an IAEA report that verifies Iran is still violating key provisions of the nuclear accord. The Iranians have said they’ll continue to violate the agreement in the absence of a deal that sees the European powers facilitate oil sales for Tehran (more on that here).

Whatever the case, to the extent the US president was irritated with the euro early Friday, one hopes his advisors don’t let him look at any charts for the rest of the day.


 

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