Fundamental Comment

Markets trigger “risk off” mode on political uncertainty in Europe


Investors triggered their “risk off” mode on Tuesday as political concerns from Italy and Spain rattled market, prompting a wave of strong demand on safe havens.

The euro was hit hard against major currencies on political uncertainty in Europe’s third and fourth largest economies that raised concerns about the future of the euro area.

The shared currency slumped sharply to $1.1530, the lowest level since 20 July 2017.

EURJPY slipped to a low of 125.09, the lowest level since late June last year, resuming its drop for a sixth straight session, while the EURCHF continued its bearish direction trading lower at 1.1446, the lowest since February 8.

The Italian President Sergio Mattarella vetoed the proposed anti euro candidate for finance minister, Paolo Savona, and appointed Carlo Cottarelli as interim Prime Minister.

While the update from Italy should give support to the euro, investors focused on the uncertainty that will remain until another election in September, where the upcoming election is likely to be more of a referendum on Euro-membership.

Italian consumer confidence index sagged to 113.7 in May, the lowest since August last year, from 116.9 in April.

In Spain, Prime Minister Mariano Rajoy will face a no confidence vote on Friday after corruption issues related to his ruling party.

Once again, the focus has returned to the political uncertainty in Europe, while concerns over US-China trade war and North Korea’s dilemma have eased.

Euro STOXX 600 edged down 1.58 percent to 383.67, while gold recovered losses incurred over the previous two sessions to trade higher at $1303.50 an ounce.

The US dollar index strengthened further to a new six-month peak of 94.82, ahead of US consumer confidence data due later in the day.

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