- EUR/USD has returned to the 1.1200 region on Friday.
- Snaps elections in Italy look increasing likely.
- German trade surplus came in at €16.8 billion in June.
The single currency is alternating gains with losses vs. the buck in past sessions, prompting EUR/USD to remain sidelined around the 1.1200 neighbourhood for the time being.
EUR/USD attention shifted to Italy”¦ again
Following the move to weekly tops around 1.1250 in past days, the pair has sparked a correction lower with to the 1.1200 area with clear support in the 1.1180 region so far.
In light of the absence of fresh news from the US-China trade front, Italian politics has recently emerged as a source of volatility in spot, as frictions within the coalition government have intensified and opened the door to an increasing probability of snap elections. In this eventual scenario, M.Slavini’s Lega Nord remains the favourite to win the elections, although without majority.
On another direction, the sharp down move in both German and US yields has forced the yield spread differentials to reduce to the 220/225 pts area from the usual 240/45 pts. This was another diver behind the recent recovery in the pair.
In the data space German trade surplus narrowed to €16.8 billion in June, while the Current Account surplus came in at a non-seasonally-adjusted €20.6 billion during the same period.
Later in the NA session, Producer Prices for the month of July will be the only publication of note.
What to look for around EUR
The sideline mood in the single currency is extending so far this week, always following USD-dynamics, concerns on the trade front and its impact on global growth and growing political effervescence in Italy. Rallies in the pair, however, look limited so far amidst absence of conviction and ECB’s preparations for a fresh wave of monetary stimulus (to be announced in September most likely), including a potential reduction of interest rates, the re-start of the QE programme and a probable tiered deposit rate system. In the meantime, the unremitting deterioration of the economic outlook in the region and the lack of traction in inflation are seen limiting any occasional bullish attempts in EUR and are also lending extra support to the dovish stance of the ECB.
EUR/USD levels to watch
At the moment, the pair is gaining 0.11% at 1.1192 and breakout of 1.1249 (monthly high Aug.6) would target 1.1282 (high Jul.19) en route to 1.1294 (200-day SMA). On the flip side, the next support emerges at 1.1154 (10-day SMA) seconded by 1.1101 (low Jul.25) and finally 1.1026 (2019 low Aug.1).
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