Talking Points:
- After Italy rejected Constitutional Referendum, Euro slipped...then rallied in defiance of anti-EU gains outlook
- Dollar strong-armed into reversal with Fed countdown holding conviction back
- Day 2 of UK Supreme Court Brexit discovery, RBA decision and notable event risk dot next 24 hour landscape
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The Euro is proving itself to be a contradiction to fundamental expectation. The Italian Constitutional Referendum rendered a 'no' vote from the citizenry and in turn furthered the disruption of global financial status quo and rise of anti-globalization views. And yet, EUR/USD ended Monday up over 0.9 percent higher than Friday's close with the shared currency higher against all of its major counterparts. This defiance of fundamental gravity is not new to this critically liquid currency pair. Almost exactly a year ago, the ECB announced a massive upgrade to its stimulus program only to see EUR/USD rally sharply - again at the two-year range low near 1.0500.
There are big-picture fundamental uncertainties that will follow this Italian vote - political uncertainty, the chance that an anti-Euro Five Star Movement party gains prominence, delay on necessary support for the country's banking system - but complacency is strong for now. A temporary moderation of risk and conveniently-timed technical comparison is not however a robust backdrop for a trade. The technicals look appealing, but the fundamentals and market conditions are problematic. With the ECB rate decision still on deck Thursday (distraction rather than assumption for antithetical outcome) and FOMC still staged in our threat horizon, conviction will be found only from those that have a high risk tolerance. I will keep a close eye on EUR/JPY and EUR/GBP should the Euro rally falter. In the meantime, USD/CHF's own head-and-shoulders break may pose a more sound development with a setup that can exploit the jolt but not rest on the questionable fundamental path ahead.
For the next 24 hours, the docket has a range of noteworthy fundamental event risk. Yet, once again, the question is whether the listings through the immediate future can pull speculators' attention from bigger events a little further out on the docket. The Euro-area and US items (retail PMIs and trade respectively over the next 24 hours) are not going to override the potency of the ECB and Fed. That said, the Australian Dollar may find enough of a drive in the RBA and then 3Q GDP to keep under power - particularly with crosses like AUD/CAD and AUD/NZD. Another fundamental surprise is the rebound from the Chinese Yuan (USD/CNY and USD/CNH declines) despite the headlines over the weekend about the income US President's call to Taiwan's leader and restated trade threats. Technical incredulity arises from US Oil prices with 52 resistance still standing despite OPEC's vows still ringing in our ears. We discuss surprises, technicals versus fundamentals and distraction in today's Trading Video.
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