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Political Pressure is on the Rise Again

There are two significant political issues in play for the Euro at present time that will garner more attention over the coming weeks and months. First, how does the relationship between Italy and Brussels evolve? The Italian government continues to be a thorn in the side of pan-European policymakers (especially as concerns grow that its new debt offering could be akin to a parallel currency to the Euro) and will likely stymy any significant fiscal policy changes. Second, will the EU revoke Switzerland’s preferential treatment for its stock exchanges? There could be ramifications for Brexit (e.g. the EU won’t treat the UK different than it treats Switzerland and vice-versa).

The next president of the European Central Bank will be decided in the coming months. Outgoing ECB President Mario Draghi has a complicated history in office, having saved the Euro from dissolution but failing to get the Eurozone over the low growth hurdle in the wake of the Global Financial Crisis. Politics is very much in play here, with French President Emmanuel Macron clearly lobbying against former German central banker Axel Weber, going so far as to extend an olive branch to noted hawk and Bundesbank president Jens Weidmann (a key opponent to QE and low rates in years past; he has since recanted those views). Read the full preview on the next ECB president.

Euro Technical Outlook Inconclusive

Euro technical positioning looks inconclusive at the mid-year mark. Breaking above resistance at the top of a bullish Falling Wedge chart formation on the bellwether EURUSD exchange rate offered a brief glimmer of hope for an upside reversal, but follow-through failed to materialize. The pair swiftly slumped back below the boundaries of the breakout, settling into a choppy range.the monthly chart offers a stark reminder that any such moves will probably prove to be short-lived. It puts prices within the bounds of a well-defined, structural downtrend guiding EURUSD

lower for over a decade. The latest leg of the decline was apparently triggered in October 2018 with a break below range top resistance-turned-support dating back to the first half of 2015.

EUR/USD Price Chart: Monthly Timeframe

EURUSD

This barrier has been recast as resistance in the 1.1449-1.1554 area once again. The next big layer of support is in the 1.0459-1.0563 zone. Prices spent nearly two years oscillating between these thresholds previously, so seeing more of the same here now is not terribly surprising. Still, it would take truly explosive gains bringing prices well north of 1.20 to make the case for true bullish trend change.