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EUR Traders Beware - Italian Political Risk is Real

EUR Traders Beware - Italian Political Risk is Real

2018-03-02 11:10:00
Nick Cawley, Strategist
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Euro News and Talking Points

- Italy goes to the polls on Sunday adding uncertainty to the single-bloc’s currency.

- EURUSD already under pressure as proposed US tariffs spark concerns.

The Traits of Successful Traders and how to find the Number One Mistake Traders Make are just two of the topics covered in ourFree Trading Guides.

EURUSD is Looking Shaky as Political Risks Mount

The most heavily traded currency pair, EURUSD, is likely to come under renewed downward pressure in the short- to medium-term as a raft of political risks collide.

The outcome of Sunday’s Italian General Election is still far from clear and remains capable of producing a shock result. For the first time in Italian election a new electoral law will be in force that states that no bonus seats are available for any party that gets an absolute majority. The latest polls show a centre-right coalition led by Silvio Berlusconi’s Forza Italia party ahead but short of an overall majority, while the anti-establishment Five Star Movement, founded by comedian Beppe Grillo, is expected to be the largest single party. But as with all things political shocks may occur, previously unexpected alliances may be formed, or Italy will be plunged into numerous rounds of coalition talks leaving the country in limbo.

Also over the weekend, the German Social Democratic Party (SPD)will reveal if its members have agreed to a new coalition with the Christian Democratic Union/Christian Social Union (CDU/CSU), with polls currently pointing to the SPD endorsing the move.

US President Trump and Trade Tariffs

And just to add fuel to the EURUSD fire, US President Donald Trump announced Thursday that he is looking at imposing sizeable tariffs on steel and aluminium imports shortly, sparking real worries over a global trade war.

The Impact of Tariffs and Trade Wars on the US Economy and the Dollar

This move comes after new Fed Chair Jerome Powell’s recent hawkish testimony which has underpinned the US dollar and looks likely to push the greenback further ahead.

Gold Appeal is Growing as Trade and Currency Wars Materialize

EURUSD Price Chart Daily Time Frame (September 2017 – March 2, 2018)

EUR Traders Beware - Italian Political Risk is Real

Chart by IG

Trade Data Points to Bullish EURUSD Price Move

IG Retail Trader data show 39.9% of traders are net-long with the ratio of traders short to long at 1.51 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.056; price has moved 16.1% higher since then. The percentage of traders net-long is now at its lowest since Feb 22 when EURUSD traded near 1.2325. The number of traders net-long is 15.6% lower than yesterday and 3.0% lower from last week, while the number of traders net-short is 1.6% higher than yesterday and 7.6% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EURUSD-bullish contrarian trading bias.

What’s your opinion on EURUSD?Share your thoughts with us using the comments section at the end of the article or you can contact the author via email at nicholas.cawley@ig.com or via Twitter @nickcawley1.

--- Written by Nick Cawley, Analyst

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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