Brexit vote has had limited negative impact on the Eurozone economy – MUFG

Lee Hardman, Currency Analyst at MUFG, suggests that the main focus in the European trading session today will be on the release of the latest PMI surveys from the euro-zone for August.

Key Quotes

“Business confidence has held up better than feared so far in the euro-zone following the Brexit vote in June. If the PMI surveys remain broadly stable through the rest of this quarter they would be consistent with another quarter of modest economic growth similar to in Q2 when activity expanded by 0.3%. The limited negative economic fallout for the euro-zone is encouraging the euro to reverse initial modest losses following the Brexit vote.

EUR/USD peaked at just above the 1.1400-level prior to the release of the referendum results.  The bigger picture remains that the pair is still consolidating at lower levels having traded for most of this year between the 1.0800 and 1.1500 levels. We do not expect the consolidation phase to be brought to an end in the near-term. Our short-term valuation model is signalling that US dollar weakness appears overdone which favours fading EUR/USD upside as it moves towards the top of this year’s trading range in the near-term.”