Euro hit by Italian concerns
May 17th: Highlights
- Breaks strong support level
- Sterling rises on report of customs union proposal
- Dollar supported by rising yields
Rumours of request for debt forgiveness just the start.
The Euro, which has fallen by more than one percent this week, broke through the support at 1.1820 making a fresh 2018 low of 1.1763 although it has managed to rally a little as the dollar failed to again sustain a break of its strong resistance level (see below).
The drop in the euro, which has now lost five and a quarter percent since mid-April, is sure to influence inflation, but it is doubtful that it will stir the ECB into action. Yesterday’s release of Eurozone inflation data showed an unchanged result versus March with year on year inflation at just 1.2%
Soft Brexit good, Hard Brexit bad mantra returns
The headwinds facing the currency from Brexit, monetary policy and a stronger dollar could see the rally fizzle out as there are unlikely to be further positives to excite traders who have simply liquidated short positions at the low expecting to sell again into any rally.
The Government announced earlier in the week that it will produce detailed plans for the future relationship with Brussels early next month but the continued “buying of time” will soon have to stop. Theresa May is still wrestling with the Irish Border issue where she is “damned either way”
Next week’s inflation report will be the next scheduled event that will affect the pound but with the Brexit clock ticking down towards next March and the Government still unable to present cohesive proposals further weakness ahead of the data cannot be ruled out.
Dollar rally continues to hit strong resistance
President Trump’s recent foreign policy successes are having less effect now as the Singapore summit with Kim Jong-un is threatened and the effect of the opening of the U.S. embassy in Jerusalem brings continued unrest. It is the rising yield that continues to dominate and that could be a double-edged sword as it reflects concerns over the twin deficits that the President has, so far, ignored.
Have a great day!
About Alan Hill
Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.”