EUR/USD dropped over a cent in Monday trading (February 25th), following the results of the Italian parliamentary election. The results were a huge surprise, as the 5-Star Movement, headed by a former comedian, won the most votes. With no party winning a clear majority, Italy faces political deadlock, as politicians scramble to put some type of coalition together. There are no Eurozone releases on Tuesday, but the markets in the US will be busy, as there are three key releases on schedule. Federal Reserve head Bernard Bernanke testifies before the US Senate Banking Subcommittee in Washington. As well, CB Consumer Confidence and New Home Sales will be released later on Tuesday.
Here is a quick update on the technical situation, indicators, and market sentiment that moves euro/dollar.
- Asian session: Euro/dollar was fairly steady, consolidating at 1.3060. In the European session, the pair has moved higher, pushing back above the 1.31 line.
- Current range: 1.3030 to 1.3110.
- Below: 1.3030, 1.30, 1.2960, 1.2812 and 1.2758.
- Above: 1.3110, 1.3130, 1.3170, 1.3255, 1.3290, 1.3360, 1.34 and 1.3486.
- 1.3030 is providing support.
- On the upside, 1.3110 is a weak resistance line.
Euro/dollar edges higher after sharp losses following Italian election – click on the graph to enlarge.
- 14:00 US S&P/CS Composite-20 HPI. Exp. 6.7%.
- 14:00 US HPI. Exp. 0.6%.
- 15:00 US CB Consumer Confidence. Exp. 60.8 points.
- 15:00 US Fed Chairman Bernard Bernanke Speaks. Bernanke will testify on the Semiannual Monetary Policy Report before the Senate Banking Committee.
- 15:00 US New Home Sales. Exp. 381K.
- 15:00 US Richmond Manufacturing Index. Exp. -4 points.
For more events and lines, see the Euro to dollar forecast
- Italian election produces political stalemate: Elections in Italy are traditionally raucous affairs, but even Italians were shocked by the results. The 5-Star Movement, which was largely a protest movement that was dubbed a “non-party”, shocked pundits by garnering more votes than any other single party. The Center-left bloc, headed by Pier Luigi Bersani, will have a majority in the lower house of parliament, but there is a near-split in the upper house. This leaves the country in a political deadlock, as any coalition must have a majority in both houses. Prime Minister Monti’s centrist bloc fared poorly at the polls, reflecting widespread voter dissatisfaction with Monti’s tough austerity measures. The inconclusive results were a worst-case scenario for the markets, which responded with a thumbs-down to the news. The euro shed more than a cent on Monday, but has recovered partially in Tuesday trading.
- German numbers shine: The German IFO Business Climate sparkled, climbing to its highest level since April 2012. The figure exceeded expectations and joined the positive ZEW number. This increases the optimism that Germany will rebound with strong growth in Q1, after the economy contracted 0.6% in Q4. However, PMI numbers showed that the rest of the continent is mired in a deep recession. ECB head Mario Draghi insists that the Eurozone has turned the corner, and will recover later in 2013. The markets will need to see some improved releases before joining in his optimism.
- Federal Reserve back in spotlight: Recently, the US Federal Reserve released the minutes of its most recent FOMC meeting. The minutes indicated that policymakers had discussed slowing or even stopping the current round of QE before the US employment situation brightens, due to concern about the negative effect that QE could have on the financial markets. This is the same reaction seen after the previous meeting minutes, but the policy is unlikely to change anytime soon. The minutes still move markets, and the euro lost ground following the Fed release. On Tuesday, Fed Chair Bernanke will testify before the US Senate Banking Committee, and any interesting developments could impact on EUR/USD.
- US numbers keep markets guessing: The markets are having a tough time measuring the extent of the US recovery, as US data continues to paint a mixed picture. Last week was no exception, as Unemployment Claims was worse than expected. Existing Home Sales managed to beat the estimate, but Housing Starts failed to meet expectations. The manufacturing sector continues to be a sore spot in the economy, as the Philly Fed Manufacturing Index plunged. Despite the lackluster fundamentals, the dollar posted sharp gains against the euro last week, as the struggling Eurozone can only envy the problems affecting the US.