Week ahead May 29th– June 1st
Eurozone’s single currency is facing new front winds once again. New strong fundamentals that can affect the exchange rate of EUR/USD on a long term are starting the week. Most of the markets were closed on Monday, however, Italy surprised the market once again with their usual governmental instability. It has been 6 months since the Italian elections and the country is still without government. The two biggest parties, classed as “euroskeptic parties”, have not managed to form a government after the president vetoed their decision to appoint Paolo Savona as finance minister. The two euroskeptic parties have chosen Carlo Cattarelli as PM, planning for new elections in the beginning of 2019. On Monday, Carlo Cattarelli’s decision to push Italy into an early election in September was more than enough to push the pair into fresh lows. This is mainly due to the fact that a new election will give advantage to the euroskeptic parties to win and form a government this time. The potential new government will ask Europe to renegotiate the dept of the country and may push Italians into a new vote on leaving the EURO currency. As for the economic calendar, it is over-loaded this week with many economic announcements in the US. On Monday S&P/case-Shiller home price indices are expected lower at 6.5%, down from 6.8%. On Tuesday, German Harmonized index of consumer prices is expected higher at 1.8%, from 1.4%. US core personal consumption expenditures are expected to be flat at 2.5%. On Thursday, European consumer price index is expected higher at 1.6%, from 1.2%. On Friday, Non-farm payrolls is expected to add 185K higher than the last 164K and average hourly earnings also higher at 2.7% from 2.6%.
The technical view on EURUSD is negative. Due to the fact that the new lows formation is mainly a fundamental backup and not technical, we maintain a neutral stance for now. The pair is trading just above an old resistance acting now as strong support 1.1557. A rejection of this level could accelerate recovery back to 1.1700, a break and close below 1.1557 on a 4 hour chart could accelerate losses to 1.1447 .
The GBPUSD pair is following the downtrend of other majors as fears of a EURO breakout is once again on the cards. With no economic data to be release this week, the pair will be left to the fate of its counterparty, the US Dollar. Now trading on fresh lows after breaking the strong support at 1.3500 and opening the way to even lower lows around 1.3000.
Technical analysis shows GBPUSD is negative. We maintain a neutral stance for now because the current exchange level does not reflect any fundamentals backup for GBP, and the pair is already in an oversold territory. Sharp retracement should be taken into account around these dangerous levels.
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