We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
EUR/USD
Bearish
GBP/USD
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
USD/JPY
Mixed
Gold
Mixed
Oil - US Crude
Mixed
Bitcoin
Mixed
More View more
Notice

DailyFX PLUS Content Now Available Freely to all DailyFX Users

Real Time News
  • The US Dollar remains in consolidation mode against the Philippine Peso and Indian Rupee. Will the Singapore Dollar weaken as $USDSGD rising support holds ahead? Find out from @ddubrovskyFX here: https://t.co/HZ8Loqj3Ey https://t.co/6PCFkdj3ka
  • Follow @DailyFXedu for your regular #webinar updates with @DailyFX analysts and catch up on the webinars you missed. https://t.co/Da10QUg9r1
  • Greed has proven to be a hindrance more than assistance for traders. How does greed lead to #FOMOintrading? Find out from @RichardSnowFX here: https://t.co/aT8TZjlFqP https://t.co/Le8Qx6OOwV
  • $GBPUSD at the moment break-even straddles = 152pips meaning that for option traders to realize gains, the spot price must see a move greater than 152pips. Get your market update from @JMcQueenFX here: https://t.co/odj2lLRrGf https://t.co/RXCBwHGluG
  • $EURGBP has fallen over 6% since August and is now rapidly approaching a critical support level not reached since May. Will a break below accelerate the aggressive selloff? Find out from @ZabelinDimitri here: https://t.co/CBM8Fg7vM0 https://t.co/0yDnEpzQqR
  • The #Euro is struggling for direction against the US Dollar but the near-term downtrend guiding it lower since late June remains firmly intact. Where is $EURUSD heading? Get your technical analysis from @IlyaSpivak here: https://t.co/us6AINmuoe https://t.co/J4hQtyprYf
  • $DXY & $SPX500 hold steady after #FED rate cut. Get your update from @JohnKicklighter here: https://t.co/vqXlKCMDYA
  • Dow Jones & Dax 30 levels to watch ahead of the fed from @PeterHanksFX here: https://t.co/iUIrsygKz2
  • The politics of the US and UK may be starkly divided but their grip on the vast, $6.6 trillion global foreign exchange trade seems as tight as ever. Get your market update from @DavidCottleFX here:https://t.co/xTKHOvrIqg https://t.co/vtHhdnF82Q
  • How can confidence in trading help with avoiding #FOMOintrading? Find out from @WVenketas here: https://t.co/MY7j9ISn4S https://t.co/n7XwfiDZz2
Euro Vulnerable to EU Data Dump? Markets Eyeing Italian GDP

Euro Vulnerable to EU Data Dump? Markets Eyeing Italian GDP

2019-01-31 03:00:00
Dimitri Zabelin, Junior Currency Analyst
Share:

EURO TALKING POINTS – EUR/USD, EU, ITALY, GDP, FRANCE, GERMANY

  • How vulnerable is to the Euro to the upcoming data dump?
  • Forecasts indicate slower growth – magnitude could vary
  • Why is Italian GDP important, how will it impact the Euro?

See our free guide to learn how to use economic news in your trading strategy!

The Euro may be closely watched this week as a cascade of data out of the EU is scheduled to be released on January 31. Markets will be eyeing data coming out of Italy in particular, given the state of its economy and the recently semi-resolved budget dispute. All of this would be occurring against the backdrop of forecasted slower growth – with data in recent months confirming it.

Chart of Citi Economic Surpise Index - Eurozone

ITALY GDP, CONTROVERSIAL BUDGET REVIVAL IN SIGHT?

Doubt in the underlying strength of the Italian economy can be most obviously seen in the spread between Italian and German ten-year bond yields. Its sharp widening since May indicates that investors have greater trepidation in lending to Rome over Berlin. The gap’s growth accelarated during the months of debate over Italy’s controversial budget proposal.

Spread on Italian-German 10-Year Bond Yields

Chart of

Tomorrow, this spread may expand further if Italian GDP comes in at or below the current forecast. In the third quarter, GDP shrunk to -0.1%. If the country reports another consecutive contraction, it will have entered a technical recession.

The danger behind this – besides the obvious complications a recession poses – is it may re-ignite the budget dispute between Rome and Brussels. Officials may demand that the Italian government revise their already watered-down budget of 2.04 percent (down from 2.4) even lower if the country is undergoes a recession.

Deputy Prime Ministers Luigi Di Maoi of the Five Star Movement and Matteo Salvini of the Lega Norda will likely push back against any further reforms. The populist government’s campaign was built on an anti-establishment platform. If they were to capitulate to Brussels, it could potentially undermine their political clout and endanger their performance in the 2019 European Parliamentary elections.

Other key indicators of economic health – such as PMI Manufacturing – will likely be under observation. If Italy, the third largest economy in the Eurozone, enters a recession and indicators reveal underlying economic momentum is lagging, the Euro may fall over fears of a possible Eurozone crisis.

FRANCE, YELLOW VESTS, DATA UNDERSHOOTING

Key economic indicators coming out of France for the past few months have been lackluster at best with many barometers – such as consumer confidence and manufacturing – falling short of expectations. While Consumer Confidence and quarter-on-quarter GDP did outperform relative to forecasts, the broad trend remains on the downside.

Some of the impact on these indicators are politically rooted. The recent eruption in France with the Yellow Vest protestors have weighed on economic performance. This week, the second largest economy in the Eurozone will have its CPI and Manufacturing PMI data released on January 31 and February 1, respectively.

This comes after the year-on-year Producer Price Index performed worse than the previous report, and consumer spending fell short of forecasts by a substantial margin. Looking ahead, monitoring developments relating to the Yellow Vest protests will be crucial in order to understand the impact it has on the French economy and the possible effect on the Euro.

GERMANY, ECONOMIC GROWTH IN DANGER?

The German economy narrowly avoided a recession this year when quarter-on-quarter GDP reported a positive number after the -0.2 percent contraction in Q3. If the largest economy in Germany undergoes a recession, this would not likely bode well for the Euro, considering the precarious state of the other major Eurozone economies.

This also comes during a time when the popularity of Europhile liberals – such as French President Emmanuel Macron and German Chancellor Angela Merkel – are declining while Eurosceptic populism is on the rise. The economic implications of an ideological re-alignment during an economic slowdown will not likely bode well for the Euro’s long-term outlook.

On the data front, Germany’s retail sales, unemployment reports and Manufacturing PMI is scheduled to be released on January 31 and February 1, respectively. Similar to France and Italy – and most of Europe for that matter – economic data even in the German economy has been unimpressive and – now more frequently – underwhelming.

The combination of slower growth and acceleration of liberal-alternative ideologies has the potential to create a negative feedback loop. Studies have indicated that when economic conditions worsen, the propensity for voters to swing to radical ends of the political spectrum increases. The election of Eurosceptic officials with anti-establishment economic agendas could then threaten the integrity of the EU and weigh on the Euro.

IMPACT, OUTLOOK ON THE EURO

In the long-run outlook, the Euro will likely fall given the potential political economy headwinds the currency faces in 2019. In the shorter term, EUR/USD appears to have broken through the January resistance and more recently shot up through the 1.1435 price barrier and closed above it at 1.1478.

EUR/USD – Daily Chart

Chart of EUR/USD (Daily)

While for Euro bulls this may be encouraging, it is important to not forget the long-term outlook. Since April, EUR/USD has declined over 10 percent. Given the outlook for 2019, it is likely the Euro will continue to fall, barring any unexpected developments that could push the Euro on a long-term upward trajectory.

EUR/USD – Daily Chart

Chart of EUR/USD Daily

EUR/USD TRADING RESOURCES

--- Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter

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

DISCLOSURES

News & Analysis at your fingertips.