EURUSD has stabilized after Italy’s political risk premium narrowed. The major is subject to consolidate in a tight range this week after a decent rebound from last week’s low. The latest political developments in Italy and the month-end FX positioning are indicating the euro is offering limited upside risk in the tight range.

Yesterday’s economic data Sentix investor confidence revealed that the EZ is lingering with less optimism. “The new government in Italy is giving investors fears for the eurozone” reported by Sentix, the pioneer and leading provider of sentiment analyses (behavioural finance) in Europe. In the press release, the research institution also reported “The eyes are now once again on another Italian, Mario Draghi. How will the ECB respond to the new political situation?”.

 

Turning to Germany, the economy is also under pressure for the fifth time in a row, the overall index for Germany has fallen to its lowest level since July 2016. “The German economy, which seemed invulnerable at the beginning of the year, is now facing a relatively rough headwind. Expectations drop significantly to -13.8 points.” Said Sentix.

Whereas moving to inflation data for EZ, Spain, and Germany the readings are well anchored above market expectations. Based on the last week’s inflation readings we could confirm that Macro data is likely to cast this week’s technical trend as political risk is almost priced in the near-term euro’s action.

Data review:

  • Investor confidence for the Eurozone fell by more than 11 points to – 13.3. This is the lowest level since August 2012
  • Germany CPI are expected to increase by 0.5% on April
  • The annual inflation of the Spain CPI in May 2018 was 2.0%. It would imply an increase of nine tenth in the annual rate, since in April this change was 1.1%
  • Over one month, French CPI should increase a little stronger than in April +0.4% after 0.2%
  • EA annual inflation is expected to be 1.9% in May 2018, up from 1.2% in April 2018

Data preview:

The release of the services PMI for EZ being watched closely but not a game changer.

TECHNICAL OVERVIEW

In May DKK, EUR and GBP were the weakest currencies in the G10 space.

We believe CAD, TRY and NZD could perform further in June against the EUR.

The growing number of resistances are indicating the price capped for Q2.  Selling pressure remains very strong at the parallel resistance seems to be at 1.1750, May 24 high which coincides with the 20MA and the 23.6% fib reaction( 1.2555-1.1510 correction). Earlier May 14, the price was rejected at the same 23.6% (1.2555-1.1822 correction).

Whereas the price manages to close above the descending channel is still open the possibilities to breach the 20MA. A stiff footprint above the parallel resistance could open further to 1.1800/1.1820 and 1.1870 in the coming days. The daily studies RSI and the oscillator are remaining bullish.

Last week, we forecasted a cautious neutral view and later upgraded to cautiously bullish. Now we retain our cautiously bullish view with supports at 1.1590 and 1.1500.

Q2 range: 1.2000-1.1450

It is important to always keep in mind the risks involved in trading with leveraged instruments.

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