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  • EUR/USD consolidates Friday’s sell-off to May 2017 lows.
  • US Dollar Index off the highs, but holds gains amid US, China tariffs imposed.
  • Focus on Italian politics, Eurozone Final PMIs amid US Labor Day holiday.

EUR/USD trades muted just below the 1.10 handle to start a big week, consolidating Friday’s sell-off to the weakest level since May 2017 at 1.0962, as we progress towards the European opening bells.

Italian politics, Brexit risks and ECB stimulus talks to drive the EUR

Despite the Italian 5-Star Movement and Democratic Party  having tried their best over the weekend to hammer out a deal on a common agenda and Cabinet posts, the shared currency remains unimpressed, as the Fiber remains within close proximity to the YTD lows reached last Friday.

The spot witnessed aggressive selling last week, in the face of escalating US-China trade war and Brexit threats weighing on the German and  Eurozone  economy, with the latest German retail sales and softer Eurozone inflation already underscoring the economic slowdown concerns.

Across the Atlantic, the US economy continues to hold relatively stronger despite looming US-China trade risks. Therefore, the growth differential continues to favor the USD at the expense of the Euro. The greenback also got a boost from the month-end repositioning and reached the highest levels since May 2017 at 99.02 across its main competitors.

Meanwhile, the common currency also bored the brunt of increasing calls for ECB easing this month. “Comments from ECB’s top official Olli Rehn smashed the EUR as opposed to what Knot said earlier in the week, he said that the central bank should come up with an “impactful and significant” stimulus package in its September meeting, that should exceed investor’s expectations,” FXStreet’s Chief Analyst, Valeria Bednarik, noted.

Meanwhile, markets digest the preliminary results of the weekend’s German state elections ahead of the final reading of the Euro area Manufacturing PMIs and amid holiday-thinned light trading. The US markets are closed today in observance of Labor Day.

EUR/USD Technical levels to consider