EUR: lingering ZEWrce of concern

Stabilisation continues so far for the EUR in October, as it somewhat contrasts with
the trend of posting fresh lows pretty much month after month since the start of the
year. Not that the Eurozone near-term outlook has shown any signs of
improvement, as instead recessionary threats have become more acute going into
the winter. After the German government recently downgraded its forecast to a
GDP contraction next year, further deterioration is expected in today’s ZEW survey,
although only a further sharp slump could eventually risk undermining the EUR
ahead of next week’s more influential flash PMIs. Before that, an EU Leaders
summit is due to take place at the end of the week (20-21 October), during which
energy considerations are likely to be centre stage. Besides pure price
considerations, the market could keep a close eye on whether energy consumption
across the Eurozone is facing more stringent restrictions in the face of increasingly
disrupted supply coming from Russia. Unless activity prospects are to take a
severe hit, the EUR consolidation could have longer legs, while interventions from
the ECB’s Isabel Schnabel and Gabriel Makhlouf today should not bring any fresh
food for thought ahead of next week’s meeting.

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