EUR/USD opens in a bullish gap of 35 pips with EZ politics also up in the air

• EUR/USD: a bullish opening gap away from new trend lows puts breaks on the downside.
• European politics to drive price action at the start of the week.

EUR/USD has started out in early Asia with a bullish gap of 35 pips in  thin illiquid trade. However, the weekend came with plenty of headline fillers to keep traders active despite the European and US holidays – Sergio Mattarella, the president of Italy, vetoed the choice of economy minister, prompting the Prime Minister to resign – euro bullish on the basis that the coalition is euroskeptic.  

The attempts at forming a coalition between the Five Star Movement and League have failed; So we are still many weeks down the line since the elections and there is still no resolve. “The reason for the collapse of the budding populist government in Rome is that Matteo Salvini, the leader of the far-right League, and Luigi Di Maio, the head of the anti-establishment Five Star Movement, had proposed Paolo Savona, an 81-year old Eurosceptic economist, as finance minister,” the Financial Times reported.

A two-sided  euro on Italian political catalyst

The broader risk could be argued to be negative for the euro on the continued uncertainties in the eurozone project, (also recall last Friday’s news that the Spanish government threatened by the corruption case) and not least, Italian politics – thus widening the DE/US yield spread. EUR/USD dropped from 1.1733 to Friday’s closing low of 1.1645, (a new trend low).

Looking ahead, the week will start slow on the data front but eyes will turn to both inflation figures from Germany and the EU ahead of the US Nonfarm Payroll report on Friday. On favourable jobs data from the US, 1.1550 will be a key level in a continuation of the downside. “We forecast a solid 205k nonfarm payroll employment increase in May, with essentially all of the gain coming from private employers,” analysts at Nomura wrote.

Key levels

The technical picture leans bearish with the falling RSIs and the price changing hands below the 38.2 Fib of 1.0340-1.2556 range.  Valeria Bednarik, chief analyst at FXstreet  noted that in the 4 hours chart, “the pair is developing below all of its moving averages, with the 20 SMA providing a dynamic resistance at around 1.1720, and technical indicators turning lower within negative territory, the RSI currently at 30, all of which favors additional declines, now targeting the 1.1550 region, where the pair bottomed in November 2017.”