The sharp decline in the euro area’s current account deficit reassures the euro

The balance of payments deficit in the eurozone in September was much smaller than expected at 8.1bn compared to 26.9bn a month earlier and the expected 20.3bn. Such a considerable difference was explained by a fall in the capital outflow of 3.3% or 15.8bn. Meanwhile, the inflow rose by another 0.6% or 3.1bn, renewing a historical high.

Interest in goods from the eurozone in September was boosted by the low euro exchange rate, which fell to a 20-year low of $0.96 at one point.

A much smaller balance of payments deficit is good news for the euro as speculators’ reassessment of the outlook for capital inflows/outflows may follow. As it turns out, flows have already fallen at the worst times for the euro exchange rate. This could be a significant signal of a trend reversal after almost a year of outflows.

It is now worth looking at how the Euro-region industry will behave. If it exploits the euro weakness to increase exports systematically, that will signal a long-term trend reversal and a EURUSD pullback from the 20-year lows.

The FxPro Analyst Team