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Greg Gibbs, Analyst at Amplifying Global FX Capital, points out that the big moves in the last week or two were in the EUR largely on political developments in Italy, and then Spain on Friday.

Key Quotes

Until recent weeks, the Eurozone has seemed impervious to political risks; including the Catalan separatist movement, A German government stalemate, and protracted political uncertainty in Italy.”

“The market appeared to be doped by the novocaine provided by ECB’s asset purchases. However, for some reason, it has awoken and is demanding a risk premium again for investing in periphery Europe.”

“Perhaps the events in Italy have made the risk of a clash between Italy and the EU more real. The market may have been stirred by broader volatility; including upheaval in Turkey ahead of the election next month.   Argentina and Venezeuala markets have also been in crisis.”

“Perhaps the rise in US yields and a stronger USD have created a more risk-averse market environment that has spilled into the Eurozone.   Higher oil prices may have further undermined confidence in EM energy importers like INR and added to a sense of tightening financial conditions for households and businesses globally.”

“Perhaps the market is looking ahead to a possible end in ECB QE policy, removing the novocaine for the Eurozone.   The ECB has been hinting that they will halt its QE purchases after the current program ends in September.   The program itself was halved from purchases of 60bn to 30bn EUR per month since the beginning of the year.”