EUR/USD Forecast: gains are limited as Italian political uncertainty is not much better than a populist government

The EUR/USD started the week with a significant Sunday gap on political developments.
Thin liquidity on the US, UK bank holidays implies choppier trading conditions.
The technical picture remains bearish for the pair which is capped under downtrend resistance.

Yohay Elam FXStreet

The EUR/USD is trading below the 1.1700 level after closing at 1.1648 on Friday. The pair opened with a Sunday gap on the news from Italy where a populist government failed to rise over the weekend.

President Sergio Mattarella used his powers to reject the coalition's candidate Paolo Savona for Finance Minister. The 81-year old is a known Euroskeptic and was chosen by the 5-Star Movement and the League, as well as Prime Minister-designate Giuseppe Conte. Mattarella said he cannot accept a minister that would risk Italian savers, as bond yields have risen. In response, Conte returned the mandate and 5-Star leader Luigi di Maio called for the impeachment of the President. The euro zone's third-largest economy may hold new elections on September 9th, but nothing is certain.

Markets preferred the uncertainty and a potential caretaker government over the populist coalition which planned to slash taxes and increase spending, thus enlarging Italy's already high 132% debt-to-GDP ratio. Savona's candidacy had caused concerns last week. However, the Italian issue is far from being resolved.

Another positive political development came from the Korean peninsula. After US President Trump canceled the Summit with North Korean Leader Kim Jong-un, South Korean President Moon Jae-in met with his North Korean counterpart over the weekend in a surprise move. In addition, a US delegation was dispatched to Pyongyang and the Summit may still take place in Singapore on June 12th. The resulting risk-on sentiment also helps the pair.

These developments are good for a bounce from the lows but not for a full-scale turnaround. The euro-zone still underperforms the US and the European Central Bank lags behind the Federal Reserve. After reaching 1.1726, the pair is sliding, albeit not closing the gap at the time of writing.

EUR/USD Technical Analysis

The thick black line on the chart shows a steep downtrend resistance line which caps the pair. The RSI is around 30, flirting with the oversold territory. In addition, Momentum remains to the downside.

The 2018 low of 1.1646 is close and is the first line of support. 1.1600 is a round number and may delay a fall. Substantial support is only at 1.1550, the November low.

On the upside, 1.1717 was a low point in December 2017 and still serves as a pivotal line. 1.1767 was a stepping stone on the way down and may provide some support. 1.1822 was the May 9th low and switches to resistance.

More: EUR/USD faces strong resistance after Italian-induced recovery — Confluence Detector

Author

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

USD/JPY eyes August swing low, near 155.20 ahead of US NFP

USD/JPY retests the August monthly swing low during the Asian session on Friday as a more hawkish repricing of BoJ rate-hike bets and a suspected intervention continue to underpin the Japanese Yen. Meanwhile, the US Dollar is seen consolidating the previous day's heavy losses amid soft US bond yields, further weighing on the currency pair as traders keenly await the US NFP report.

AUD/USD consolidates above 0.7200; US NFP awaited

AUD/USD holds steady above 0.7200, near its highest level since mid-May, as bulls await the US NFP report for more cues on the Fed's policy path before placing fresh bets. Meanwhile, the recent decline in US bond yields keeps the US Dollar depressed near its lowest level in over a week and acts as a tailwind for the Aussie amid the RBA's hawkish tilt.

Gold tumbles as blockbuster US NFP lift US Dollar, Treasury yields

Gold (XAU/USD) falls sharply on Friday, snapping a two-day recovery after the US Nonfarm Payrolls (NFP) report surprised strongly to the upside. The metal briefly climbed above $4,500 on Thursday, gaining nearly 2%, but has since erased a large part of that advance.

Crypto’s $638 million buyback boom may not be as bullish as it looks

Decentralized Finance (DeFi) protocols reportedly spent $638 million to buy back their native tokens in August, up 17% from a year earlier. On the surface, the buyback trend suggests the cryptocurrency industry is maturing fast, adopting one of Wall Street’s oldest tools to bolster valuations and distribute revenue. The headline becomes less impressive once the number is opened up.

Why hawkish Bank of Japan expectations aren't enough to sustain the Japanese Yen rally

The Japanese Yen (JPY) experienced a sudden burst higher after falling back below the 160.00 psychological mark against the US Dollar (USD) earlier this week amid a more hawkish repricing of Bank of Japan (BoJ) rate hike expectations.

Diesel’s record $100 warning: The oil shock hiding in plain sight

The Oil market may look calmer than it did a few months ago, but diesel is sending a very different message. The US diesel crack spread, the premium of ultra-low sulphur diesel futures over WTI, recently surged above $100 per barrel for the first time, reaching an intraday record of just over $102.00.