EUR/USD sees headwinds on the rise from Italian budget, German elections upset

Europe remains exposed to bearish headlines as politics hampers broader markets.
Germany's current ruling coalition faces threats of dissolution on the homefront while Italy disobeys Brussels's wishes on deficit spending.

Joshua Gibson FXStreet

The EUR/USD is holding steady near 1.1550 after the week opened with a bearish note after a market-opening gap into 1.1537 as markets twist into a cautious mood as Italian government budget issues mix poorly with regional elections in Germany flashing warning signs for Angela Merkel's ruling party.

The Italian cabinet is slated to meet today and approve the country's hotly-contested 2019 budget, which sees Italy intentionally widening the government's operational deficit, increasing the country's overall debt pile despite fierce objections from EU leaders in Brussels, and EUR markets could see bearish shocks throughout the day as the defiant Italian government confirms their deficit spending, despite the EU's Commission threatening to outright reject the government's budget package without even bothering to read it.

In a shock to Angela Merkel's already-creaking coalition, the anti-immigration Alternative for Germany (AfD) party won seats in Germany's parliament for the first time over the weekend, following regional elections in Bavaria, where Merkel's CDU/CSU coalition saw Angela's sister party, the CSU, lose significant ground against right-leaning upstart political campaigns, threatening to end Merkel's coalition and take away control of Germany when state elections begin in a month.

EUR/USD levels to watch

The Euro is continuing last week's bearish slant into the new trading week, and as noted by FXStreet's own Valeria Bednarik, "the EUR/USD pair was unable to revert the negative tone despite closing the week with modest gains, as in the daily chart, the rally reversed from a major resistance area, where the pair has converging 20 and 100 SMA, and the 50% retracement of its latest slide between 1.1814 and 1.1431. Technical indicators in the mentioned chart have lost upward strength well into negative territory and after correcting oversold conditions a sign that buyers are still sidelined. In the 4 hours chart, the pair is holding a few pips above a bullish 20 SMA, while technical indicators eased sharply from overbought levels, but hold within positive levels, with the RSI currently flat at 53. The bearish case will gain potential on a break below 1.1520, a strong static support area and the 23.6% retracement of the mentioned daily decline."

Support levels: 1.1520 1.1490 1.1445

Resistance levels: 1.1590 1.1625 1.1660

Author

Joshua Gibson

FXStreet

Joshua joins the FXStreet team as an Economics and Finance double major from Vancouver Island University with twelve years' experience as an independent trader focusing on technical analysis.

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