EUR/USD may rise on the EU’s horse trading

May 28, 2019 Off By admin-445
  • EUR/USD is trading 1.1200 as European leaders are set to discuss the top EU jobs.
  • Italy’s Salvini and the US-Sino trade spat are high on investors’ list of worries.
  • The four-hour chart shows a mixed technical outlook for the currency pair.

The citizens of Europe have had their say, but what exactly do they want? The results have shown a fragmented parliament and the reaction in EUR/USD is mixed. While the lack of direction may be blamed also on the UK and US holidays on Monday, the indecision also lies with the complicated political scene.

Marine Le Pen won the French poll and Matteo Salvini came out first in Italy. These victories for populists, and especially in Italy, are of concern to the euro. Salvini is the de-facto leader and has already demanded a change to the EU’s budget limitations — setting Rome on a collision course with Brussels. The spread between Italian and German benchmark bonds has widened, weighing on the common currency.

On the other hand, mainstream parties shed votes not only to populists but also to the pro-European Greens and Liberals. EU leaders convene later today to divvy up the top jobs in Brussels.

Margrethe Vestager, who has been successful as European Commissioner for Competition leads the Liberals and may succeed Jean-Claude Juncker at the helm of the European Commission. Her elevation to the top job may open the door to nominating Germany’s Jens Weidman or another hawk to lead the European Central Bank — as Germany would not nominate Manfred Weber to lead the EC.

This “horse trading” begins today but may not end in one meeting. Nevertheless, if Weidmann’s chances to succeed current ECB President Mario Draghi rise, so can the euro’s probability to advance — Draghi has been dovish, leaving a legacy of pushing the euro down.

US President Donald Trump continues his visit to Japan and has repeated his stance that the US is not ready to make a deal with China just yet. The trade war persists but has not intensified in recent days — the US has not imposed new tariffs. Markets continue watching every development.

The highlight on the economic calendar is the US Conference Board’s consumer confidence measure, which is expected to remain on high ground. See the preview: 

Earlier, Germany’s GfK consumer climate disappointed with a drop to 10.1 points in May, but movements in the euro depend mostly on politics.

EUR/USD Technical Analysis

EUR/USD enjoys upside momentum on the four-hour chart and trades above the 50 Simple Moving Average. On the other hand, it lost the 200 SMA and the Relative Strength Index is looking heavy.

Euro/dollar has some support at 1.1165 which was a low point in mid-May. It is followed by 1.1135 which was a swing low early in the month, and finally by the all-important 2019 trough of 1.1107.

Some resistance awaits at 1.1190 which capped the currency pair last week. Further up, the weekly high of 1.1218 is already more significant resistance. 1.1250 and 1.1265 held down EUR/USD during May and are the next lines to watch.