Euro bounce deceptive as divergence trades bloom

London

THE euro bounced from a six-week low on Tuesday as markets consolidated positions after a sell-off, though investors grew cautious about the single currency's outlook in the coming months on rising political uncertainty in Europe.

The unexpected outcome of the German election on Sept 24 and Sunday's violence-marred independence referendum in the Spanish region of Catalonia has put the brakes on euro-bullish trades, with markets increasingly looking for the single currency to test the July lows of around US$1.15. "I think there's a possibility, given what's going on in Spain right now and given the fact Germany still doesn't have a government and isn't likely to get a government anytime soon, the political uncertainty is going weight on the euro," said Michael Hewson, chief market strategist at CMC Markets.