Euro rises, oil plunges – caution warranted

Clare MacCarthy

Senior Editor, Saxo Bank
Clare MacCarthy first joined Saxo Bank in 2012 to work as a senior editor on TradingFloor.com. Prior to this, she worked as a Denmark-based foreign correspondent for The Economist and the Financial Times and also served as Copenhagen bureau chief for Dow Jones Newswires.

The weekend's big story was Italy's descent into political chaos after the country's president blocked the appointment of a eurosceptic candidate for finance minister and the populist/anti-establishment pairing working to form a government abandoned their attempt.

"The big question now is whether we'll get an election or a technocrat government. What is certain is that this isn't good for the market and it's not good for Italian BTBs and corporate bonds," says Althea Spinozzi, from Saxo’s bond trading desk.

However, the possibility of a technocrat government rather than a deeply anti-EU one saw the euro break higher with the common currency bounding up from a six-month low early Monday. But one should be cautious here, says John J Hardy, Saxo’s head of forex strategy. "This situation is far from over and I'd be wary of going with the relief rally for now," he says, adding that headline risks are probable throughout the week.

The other big story in markets today is a dramatic reversal of fortune for crude oil which saw Brent take a deep dive as hedge funds accelerated their selling on the outlook to Opec and Russia relaxing their production cuts. The key level of $71.40 is now back in play, barring any modifications by Opec or Russia to their comments last week about loosening their restrictions on output.

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