- EUR/USD has been gradually moving upwards amid a better market mood.
- The Italian political drama, Trump’s tariffs, and seemingly exaggerated Fed expectations fuel the rise.
- Tuesday’s four-hour chart points to further gains for the pair.
Have markets learned to ignore President Donald Trump’s tariff threats? That may be the message. EUR/USD has been on the rise.
1) Ignoring Trump
Trump has warned China that he will move to slap new tariffs if his Chinese counterpart Xi Jinping does not meet him at the G-20 Summit at the end of the month. Moreover, he seems to feel vindicated after securing a deal with Mexico using the threats of new levies – even though the accord seemingly achieved little.
Markets are ignoring the threat of a further escalation between the world’s largest economies.
2) Ignoring the Fed
Stocks are rising and the safe-haven US dollar is on the back foot – the latter also due to expectations for a rate cut. Bond markets now foresee the Federal Reserve slashing interest rates in July. Several commercial banks are aligned with markets – predicting two rate cuts this year – with Goldman Sachs standing out by expecting none at all.
Speculation of monetary stimulus has risen after Friday’s disappointing jobs report and the focus now shifts to inflation. US producer prices are due later today and they serve as a hint towards Wednesday’s all-important consumer price report. Slower inflation may push the central bank to cut rates while a rise may push back any such decision – disappointing markets and sending the dollar higher.
The market may have gotten ahead of itself by aggressively pricing cuts.
3) Ignoring Italy
In the old continent, tensions between Italy and the European Commission are on the rise. The EC has taken another step toward punishing the third-largest economy in the euro-zone for breaching its budget deficit rules. Matteo Salvini, Italy’s deputy PM and considered de-facto leader has reiterated his demand for tax cuts. Salvini, the leader of the League, has been empowered by his victory at the European elections. He has also been clashing the 5-Star Movement – his coalition partner – led by Luigi di Maio, and also with PM Giuseppe Conte.
If Italy eventually accepts EU rules – as it did in late 2018 – the euro will have room to rise. Yet if Rome goes all the way, its battle with Brussels will likely take its toll on the euro.
How long can EUR/USD ignore these three issues? Sobering up may happen sooner than later, but not all is lost.
Another euro-zone development is more favorable to the common currency. Greek PM Alexis Tsipras has called a snap election for July 7th. His left-leaning Syriza party is set to lose to center-right New Democracy – a market-friendly party.
The Sentix investor confidence gauge is eyed later today, but Italian politics, trade tensions, and Fed speculation will likely have a greater say in EUR/USD price action.
EUR/USD Technical Analysis
EUR/USD enjoys upside momentum and a positive Relative Strength Index – which shies away from overbought conditions – it remains below 70. Moreover, the pair is trading above the 50, 100, and 200 Simple Moving Averages on the four-hour chart.
All in all, the chart points to further gains.
Initial resistance awaits at 1.1325 which has capped EUR/USD today, on Monday, and also in mid-April. The next line to watch is 1.1348 which was the 11-week peak seen on Friday. The next levels date back to March – 1.1395 and 1.1445.
Looking down, initial support is at 1.1310 which was a swing high last week. 1.1290 provided support on Monday, and 1.1250 was a stepping stone on the way up last week. 1.1220 and 1.1200 are next.