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US AM Digest: EUR Underperforms on Italian Political Concerns

US AM Digest: EUR Underperforms on Italian Political Concerns

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US Market Snapshot via IG: DJIA -0.1%, Nasdaq 100 (unch), S&P 500 -0.1%

Major Headlines

  • Italian Assets underperform over Italian political concerns
  • Geopolitical tensions rise as North Korea abruptly cancels South Korean summit

EUR: Investors have had a first glimpse of the concerns that a populist coalition poses with reports stating that the League and 5 Star Party are looking for a EUR 250bln debt relief from the ECB, while also looking at a mechanism by which nations can leave the Euro. Subsequently, the Euro has been the notable underperformer amid the near 20bps of widening between German and Italian yield spreads as Italy’s new government looks to be on a collision course with the EU. In turn, EURUSD made a break through 1.18 with the 1.17 now on the cards, while EURJPY is looking at making a move towards YTD lows (128.94).

USD: As a by-product of the Euro weakness the initial losses in the greenback have been pared and as such the USD-index has posted fresh YTD highs. As markets continue to focus on rate differentials in favour of the USD, particularly after yesterday saw 10yr bond yields rise above taper tantrum highs the currency looks intent on making a move towards 94.00 before the highs seen in December at 94.22.

JPY: Dampened risk sentiment has supported the JPY against its major counterparts. Overnight, North Korea seemingly had a change of heart after abruptly cancelling its South Korean summit and threatening to withdraw from the meeting President Trump is the demands from the US are one sided. USDJPY failing to garner significant buying interest above 110, while the losses in EURJPY are leading the advances in the JPY with pair trading with losses of 0.7%.

DailyFX Economic Calendar: Wednesday, May 16, 2018 – North American Releases

DailyFX Webinar Calendar: Wednesday, May 16, 2018

IG Client Sentiment Index: EURUSD chart of the day

EURUSD: Data shows 55.4% of traders are net-long with the ratio of traders long to short at 1.24 to 1. In fact, traders have remained net-long since Apr 30 when EURUSD traded near 1.208; price has moved 2.1% lower since then. The number of traders net-long is 1.4% higher than yesterday and 2.9% higher from last week, while the number of traders net-short is 7.3% lower than yesterday and 1.5% higher from last week.

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

Five Things Traders are Reading

  1. JPY Looking Attractive on Rising Risks Posed by North Korea and Italyby Justin McQueen, Market Analyst
  2. Cryptocurrencies - Prices Edge Lower, Ranges Forming | Webinar” by Nick Cawley, Market Analyst
  3. Trading Outlook for USD, EUR/USD, GBP-Pairs, Gold Price & More” by Paul Robinson, Market Analyst
  4. Political Risk in Italy Returns to Haunt EUR, BTPs and Italian Stocks by Martin Essex, MSTA, Analyst and Editor
  5. EURUSD Bounces May Attract the Bears by Nick Cawley, Market Analyst

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--- Written by Justin McQueen, Market Analyst

To contact Justin, email him at Follow Justin on Twitter @JMcQueenFX

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