Euro Nervously Eyes ECB Rate Decision, Turmoil in Italy, Trade Wars

EURO FUNDAMENTAL FORECAST: BEARISH

• Euro traders nervously eye ECB rate decision and econ outlook
• Rome-Brussels budget battle may undermine EURUSD strength
• EU-US trade tensions remain headline risk as global growth slows

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The Euro will be under pressure this week ahead of the release of the ECB rate decision and ongoing negotiations between Rome and Brussels over the former’s budgetary ambitions. EU officials will also be continuing their talks on who will head major European institutions including the European Commission, European Council and the ECB.

The ECB is expected to hold rates in negative territory this week as the global and regional outlook for growth continues to sour against the backdrop of unfavorable geopolitical tensions. Internally, inter-European relations in key Eurozone member states continue to threaten sovereign bond markets. The battle of budgets between Rome and Brussels continues.

This is compounded by the recent release of Italian GDP that saw year-on-year growth shrink 0.1 percent while Italian 10-year bond yields continue to hover at multi-year highs. EU-US trade relations may become a headline concern as cross-Atlantic tensions rise against the backdrop of diverging policy approaches toward Iran.

The EU and US narrowly avoided – for the time being – an escalated trade war after US President Donald Trump delayed implementing auto tariffs against Europe which would have put the export-heavy DAX under additional pressure. Deteriorating US-Mexico trade relations also makes European policymakers nervous because of the prospect that Trump may do the same to them without notice. Such an approach has been the President’s modus operandi.

EURUSD CONTINUES TO TRADE BELOW DESCENDING RESISTANCE

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--- Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitri on Twitter