Euro and US Dollar Talking Points
- EURUSD trades either side of 1.1600 but the market is struggling to push higher.
- Italian fiscal outline agreed and will be presented to the EU Commission next week.
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EURUSD Higher but Looking Heavy
EURUSDhas nudged back above 1.1600 in early trade but is finding it difficult to keep this level despite a currently weak US dollar. The US dollar index (DXY) remains around 94.60, two-points lower than its recent 16-month high of 96.60 made on August 15, despite expectations of further interest-rate hikes ahead.
The Italian parliament late Thursday passed the new budget bill and will now forward it on to the government to be approved. The new budget will then be submitted to the EU Commission who have already voiced grave concerns over Italy’s deficit target which they say will break the single-block’s rules. A further escalation in the war of words between Italy and the EU will weigh on the euro and make further headway difficult.
In a timely intervention Thursday, the ECB said that it rules would prevent it from coming to Italy’s rescue if they run out of money, unless the country has already agreed a rescue program with the European Union. Italian banks are thought to have around EUR375 billion of government debt on their books which they use as collateral at the ECB for funding. The recent rise in Italian bond yields will make it increasingly expensive for the government to service its debts.
EURUSD currently trades at a ten-day high but further upside is being blocked by both the 20- and 50-day moving averages around 1.1605-1.1615 area. A fallback to the 1.1508 level looks increasingly likely especially if budget negotiations turn fractious next week.
IG Client Sentiment Datashow how investors are currently 53.4% net-long EURUSD – a contrarian bearish signal – but recent daily and weekly positional shifts suggest that EURUSD may move higher.
EURUSD Daily Price Chart (March – October 12, 2018)
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