EUR/USD under pressure near 1.1100, FOMC on sight

It seems sellers have returned to the market on Wednesday and are now driving EUR/USD lower to the 1.1090/85 area.

EUR/USD focused on FOMC, Italy

The pair has interrupted a five-day negative streak on Tuesday, as renewed jitters on the US-China trade front plus falling US yields weighed on the buck and forced the US Dollar Index to give away part of the recent rally.

However, the resurgence of political effervescence in Italy is expected to start weighing on the sentiment around the European currency sooner rather than later. Yesterday, (now former) PM G.Conte stepped down over increasing frictions with Lega Nord’s M.Salvini and his plans for a ‘no confidence’ vote against the government.

Still in Italy, President Mattarella should now decide whether to form a new coalition government (although the ‘majority’ will be a key issue here), call for snap elections or appoint a German-style ‘institutional’ government. Any solution, however, is not expected to come without further frictions among parties and swelling effervescence, at least in the next few months.

Nothing scheduled data-wise in Euroland today, whereas all the attention should be on the publication of the FOMC minutes, due later in the NA session. Later in the week, markets’ focus is expected to remain across the pond and on the speech by Fed’s J.Powell at the Jackson Hole Symposium.

What to look for around EUR

EUR has finally succumbed to the downside pressure although another test of YTD lows in the proximity of 1.1020 remains elusive for the time being. Renewed buying interest surrounding the buck, expectations of ECB easing and Italian politics are seen driving the mood around the shared currency at the moment. That said, sustained bullish attempts in the pair still look flimsy amidst ECB’s preparations for a fresh wave of monetary stimulus (most likely to be announced in September), including a potential reduction of interest rates, the re-start of the QE programme and a probable tiered deposit rate system. This scenario has been confirmed as of late following poor results from the euro-docket, adding to the unremitting deterioration of the economic outlook in the region.

EUR/USD levels to watch

At the moment, the pair is losing 0.04% at 1.1094 and faces the next contention at 1.1065 (low Aug.20) seconded by 1.1026 (2019 low Aug.1) and finally 1.0839 (monthly low May 11 2017). On the upside, a break above 1.1140 (21-day SMA) would target 1.1222 (55-day SMA) en route to 1.1282 (high Jul.19).