Euro: Risk concerns weigh on currency against US Dollar - Danske Bank

Eurozone consumer confidence fell more sharply than expected in October, while the forthcoming flash PMIs are forecast to show the composite index easing from 53.1 to 52.7, still indicating moderate economic growth. Against this backdrop, Danske Bank points to deteriorating sentiment towards the euro as French CDS spreads rise. EUR/CHF declined and EUR/USD briefly slipped below 1.12, while US and German bond yields fell across the curve. Markets now turn their attention to the flash PMI releases.

Euro weakens as Treasury yields decline

"EUR/CHF also dropped as the bearish EUR sentiment grew together with a new rise in the French CDS. EUR/USD also briefly fell below 1.12. Yields dropped across the curve both in US and Germany. Notably, the 10Y US Treasury yield fell below 5% for the first time in a month."

"In the euro area, consumer confidence fell more than expected in October to -17.9 (cons: -17.0, prior: -16.8), which is the lowest level since May."

"Weak confidence should weigh on consumption in the fourth quarter of the year. However, we saw decent consumption growth in Q2 despite plunging confidence, so the indicator is not the most reliable for spending at the moment. "

"In the euro area, the flash PMIs for October are released, which are set to be important for markets. Following a positive trend in the latest months, the PMIs are expected to show stabilisation with small declines. "

"The composite PMI is expected to fall to 52.7 from 53.1 which is still a strong level that indicates moderate growth in the economy, despite a small decline. We pay particular attention to the price components, which started to rise again last month due to higher energy prices."

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