- EUR/USD is recovering in range on some willingness to compromise from Italy.
- There are quite a few other concerns.
- The technical picture remains mostly bearish.
EUR/USD is trading above 1.1350, recovering from the lows in the wake of the last week of November. The central driver is Italy’s willingness to compromise on the budget deficit. Deputy PM Matteo Salvini, considered by some as the de-facto PM, opened the door to lowering the deficit over the weekend. His colleague Luigi di Maio also opened the door to lowering the deficit.
The European Commission demanded a 2% deficit and recommended a disciplinary procedure against the euro zone’s third-largest economy. Up to now, both sides dug into their heels, and this triggered a sell-off in Italian bonds and weighed on the Euro.
Now we are seeing the spread by Italian 10-year BTP’s and the benchmark German bunds narrow and fall below 280 basis points, the lowest since early October. The road to an agreement between Rome and Brussels is still long.
Brexit, Germany, and the US
The picture around Brexit not as happy. While the EU approved the deal, UK PM Theresa May faces an uphill battle in parliament. The concessions around Gibraltar, the DUP’s threat to abandon the supply and confidence agreement, and the call by European leaders o back the deal do not help. The pound is the primary mover on Brexit news, but the Euro remains affected.
The most significant source of worry comes from Germany. The fresh IFO Business Climate figure for November dropped to 102 points from 102.8, indicating growing concern. The result goes hand in hand with Friday’s Purchasing Managers’ Indices that also fell short of expectations.
Later today, ECB President Mario Draghi will testify in front of a committee of the European Parliament in Brussels. It will be interesting to see if he remains optimistic about growth and reaching the inflation target or if the recent data cause him to change his mind.
In the US, there is no noteworthy economic indicator, but American stocks markets are set to affect EUR/USD. The current rise in S&P futures and the risk-on atmosphere support the increase in the pair.
EUR/USD Technical Analysis
EUR/USD is moving up, but it may merely be on the way to setting another lower high. The trend in the last week is to the downside, as shown by the downtrend support and resistance lines. Moreover, the pair is capped by the 50 Simple Moving Average on the four-hour chart (blue line) which is at around 1.1380 at the time of writing. Momentum and the Relative Strength Index are balanced.
Support awaits at 1.1355 that was a swing low last week. Further down, the rough of 1.1325 seen on Friday awaits the pair. 1.1300 was a double bottom. 1.1215 is the 17-month low set in mid-November.
Looking up, 1.1395 was a support line in mid-November. More importantly, 1.1435 capped the pair on its way down last week. Last week’s high point at 1.1475 is next and is followed by the round number of 1.1500.
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