EURUSD Remains Fragile as Italian Risk Continues to Rise
EURUSD News and Talking Points
- A Five Star Movement/Northern League tie-up will ring alarm bells in Brussels.
- USD pauses before the next move higher.
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EURUSD Likely to Come Under Further Downside Pressure
The possibility of a populist government in Italy – made up of the anti-establishment Five Star Movement and the far-right Northern League – will weigh heavily on an already-weak Euro. Discussions are ongoing between the two parties, and are expected to continue over the weekend and beyond, and any sign that a new populist government is imminent will send Italian bond yields – a gauge of risk – even higher and the EUR lower. Italian bond yields jumped to a six-week high on Thursday as news of the discussion filtered out and are expected to stay elevated despite the ECB’s ongoing QE program. A joint government would likely ramp-up pressure on EU budget restrictions and take a tougher stance on migration policies, adding pressure on the EU at the same time as they try to deal with the complexities of the UK leaving the single-block.
EURUSD has recovered some poise in early trade Friday, due mainly to the US dollar pausing after its recent run-up, but the technical backdrop for the pair remains weak with fresh multi-month lows in sight. The pair continue to trade below the 200-day moving average, with the 20-day day ma likely to trade through the 200-day ma as well. The 200-dma offers resistance around 1.20550 ahead of 1.20910 and 1.21547. On the downside the December 12 low at 1.17175 protects 1.16693 and the November 7 low of 1.15540.
The latest IG Client Sentiment Indicator also adds weight to a further fall in EURUSD with retail traders’ net-short positions falling over the week, giving us a stronger EURUSD bearish bias.
EURUSD Price Chart Daily Timeframe (July 2017 – May 11, 2018)
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--- Written by Nick Cawley, Analyst
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.