The US dollar and yen remain firm.The ramifications of Brexit continue to weigh on sterling and the euro.  After nearing $1.4050 yesterday, sterling could not move much above $1.4150 before sellers re-emerged.The euro, which came close to $1.10 yesterday, was sold into about half a cent bounce.It marginally extended yesterday’s decline, slipping to almost $1.0990. 

There is no fresh catalyst, but Germany’s IFO survey did the single currency no favors.  The assessment of the business climate fell for the third consecutive month (105.7 from 107.3). The current situation improved (112.9 vs. 112.5), but the expectations component deteriorated (98.8 vs. 102.3). Yesterday, the flash manufacturing PMI fell to 15-month lows.  

Europe’s largest economy has lost some momentum. It is materializing as Germany also faces a changing political climate. Merkel’s public support has softened over the refugee issue, and three states hold elections next month that will be important tests for the Chancellor’s political future.

Separately, details of Germany’s Q4 GDP were released.  They confirm that despite the weaker euro, and suggestions that is a beneficiary of the so-called currency wars, German net exports were a drag on growth for the second consecutive quarter.Not only was German growth (0.3% quarter-over-quarter fueled by domestic demand, the mix including a 1.5% rise in business investment and a 1% increase in government spending.This combination is precisely what Germany’s critics have been advocating.   

The Survation poll in the UK, conducted by telephone over the weekend, found 48% want to stay in the EU.  A full third want to leave, and almost one in five are undecided.Nevertheless, the impact of a Brexit, on sterling (and the euro) is seen to be sufficiently grave as to offset the actual odds of it materializing.   

Although we suspect the price action is exaggerated, but from a technical perspective, it does not seem like the move has exhausted itself.  The $1.40 area is significant.Its failure to hold could see a move toward $1.37 as the next target.The euro support is seen near $1.0950.