EUR/USD May Hold Steady as Investors Weigh Italy, Brexit Outcome

2019-02-04 02:23:00 Dimitri Zabelin, Analyst

EURO TALKING POINTS – EUR/USD, ITALY RECESSION, BREXIT STALEMENT

EUR/USD – short-term congestion ahead?
Effects of recession in Italy still to be seen
Investors holding steady on Brexit outcome

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The Euro – and broadly speaking European assets – have been under pressure from Brexit and forecasts of sluggish growth against the backdrop of continental ideological re-alignment. Italy recently slipped into a technical recession and Brexit has been in a stalemate since the House of Commons voted on amendments to the Prime Minister’s new plan.

EUR/USD has lost almost 10 percent of its value since April, illustrating the profound effect trade wars and regional political unrest have on the currency. Since January 10, the pair was closing below a resistance that was broken on January 25. The pair rose 0.92 percent and has since continued to trade higher until it reached 1.1478.

Underlying momentum and optimism for the Euro’s potential upward trajectory failed to gain traction, and EUR/USD closed lower at 1.1456.

EUR/USD – Daily Chart

In the short-term, the Euro may trade between 1.1505-1.1478 as investors scan the geopolitical landscape and endeavor to forecast the risks associated with Italy’s recession and the outcome of Brexit. Hope – but not sturdy confidence – of upward movement is illustrated with the wicks on the candles on January 30 and 31 that reached as high as 1.1514.

Until more is known, and the potential risks are more understood, the Euro may trade cautiously between 1.1505-1.1478. However, fundamental forecasts – and comments from the ECB – indicate that risks in the European economy are mounting on the downside as time progresses.