EUR/USD Forecast: Ignoring Italy edging towards $1.2000

The EUR/USD extends its gains in the wake of the new week and nears $1.2000.
Italy will finally get a government, but it is a populist one and politics may return to the fore.
The technical picture continues improving, but significant caps await.

Yohay Elam FXStreet

The EUR/USD kicks off the new week where it ended the previous one: with a rise. The pair extends its gains, getting close to $1.2000 in a third consecutive positive day. The US Dollar is on the back foot remains on the back foot. The US inflation report on Thursday disappointed with Core CPI rising by 2.1% YoY against 2.2% predicted. This was the trigger for a long-awaited correction after the greenback gained a lot of ground. Weak data had accumulated, and the soft CPI data already sent the US Dollar down.

In the euro-zone, Italy is the center of attention. After more than two months of political deliberations, the third-largest economy in the euro-zone will finally have a government. However, this is not exactly the kind of government that markets have been waiting for. The 5-Star Movement and the League are both seen as populist parties that want to cut taxes and spend more, in a country which already has a high debt-to-GDP ratio. Moreover, politicians from both parties have been eurosceptic and have suggested leaving the currency union in the past.

So far, markets are ignoring the new government, but such events can leave the backburner and become front-page news.

European Central Bank member Françios Villeroy said that raising rates is a matter of quarters, not years. We already know that the ECB is set to end bond-buying this year and begin increasing rates sometime next year. In the US, Federal Reserve member Loretta Mester said that the Fed is set to continue its path of gradual rate hikes but did not get into details.

The main event of the week awaits markets on Tuesday with the release of US Retail Sales. The Control Group measure will likely be the center of attention once again.

EUR/USD Technical Analysis

The pair broke above the steep downtrend resistance that accompanied the pair since mid-April. The upside move is not as steep and is also noted by a thick black line on the chart.

The recovery has the shape of the letter V. Does this mean victory for the EUR/USD? Not really.

The RSI still points to the downside, and the pair is outside the oversold territory. Also, the 200-day Simple Moving Average still caps the pair at $1.2010.

Immediate resistance awaits at $1.2000, which is a round number and has also capped the pair earlier this month. Further above, $1.2055 was the April 30th low, and $1.2155 was a swing low in March and also held the pair down when it attempted a recovery.

On the downside, $1.1915 was a low point in January and temporarily served as support in May. The 2018 low of $1.1822 is next and far below; we find $1.1715.

More: EUR/USD to $1.2000? Not so fast — 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.

GBP/USD eases toward 1.3500 on geopolitical tensions, hawkish Fed bets

GBP/USD trades with mild losses below 1.3550 in the European session. The US Dollar recovers some ground amid ongoing Middle East tensions and hawkish expectations around the Fed's interest rate outlook, weighing on the pair ahead of US data releases.

EUR/USD stays below 1.1600 after mixed Eurozone inflation data

EUR/USD struggles to capitalize on the overnight bounce and trades below 1.1600 in the European session on Tuesday. The data from the Eurozone showed that the annual HICP inflation rose to 3.3% in August from 2.9% in July, matching the market expectation, while the core HICP inflation edged lower to 2.4% from 2.5% in this period. In the second half of the day, JOLTS Job Openings and ISM Manufacturing PMI data will be featured in the US economic calendar.

Gold drops to nearly two-week low, below $4,400 on hawkish Fed bets and firm USD

Gold weakens further below the $4,400 mark, hitting a nearly two-week low during the first half of the European session. Traders ramped up bets for a rate hike in September following Federal Reserve Chair Kevin Warsh's remarks last Friday.

Ripple, Cardano, and Dogecoin show weakness – Crucial EMAs in focus

Ripple, Cardano, and Dogecoin remain weak after double-digit losses last week, testing their crucial Exponential Moving Averages for immediate support. The technical outlook warns of further weakness in the prices of XRP, ADA, and DOGE as bullish momentum eases.

ISM Manufacturing PMI set to signal steady expansion in US factory activity

Attention shifts to Tuesday’s release of the August ISM Manufacturing Purchasing Managers Index, one of the most closely followed indicators of activity in the US manufacturing sector and an important barometer of the broader economy. Markets expect the headline index to worsen a tad to 55.2 in August.

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.