EUR/USD – Higher as Italy Finally Forms Government

EUR/USD has edged higher in Monday’s European session and was testing the 1.31 level. There was good news on the weekend, as Italy announced that it had formed a government, ending months of political paralysis.  In eonomic news, Italian 10-year bonds fell below 4%. Eurozone PMI showed improvement, climbing from 43.7 points to 44.2 points.The markets will be keeping an eye on German CPI, hoping that the recent string of disappointing German numbers comes to an end. In the US, GDP was a major disappointment on Friday, falling well below the estimate. Today’s US highlight is Pending Home Sales.

After weeks of a political deadlock, Italy has finally formed a government. The impasse, which had paralyzed the Eurozone’s third largest economy and had kept the markets jittery, was broken as Enrico Letta was nominated as prime minister last week. Letta’s Democratic Party does not have a parliamentary majority, so the coalition he has cobbled together may not last for long. Letta is considered a moderate and is liked within the Eurozone. The new government will be faced with an economy mired in recession and a sour electorate that is fed up with austerity measures. However, the markets were pleased that there is finally a government in place.

Will we see a rate cut from the ECB later this week? The Eurozone continues to stagnate with poor releases, and has its hands full with crises in Cyprus (bailout fiasco) and Italy (political gridlock). Speculation that the ECB will take action is growing. Goldman Sachs released a statement on Thursday, stating that it expects a 0.25% cut when the ECB meets this week. The prestigious firm also downgraded Eurozone growth for 2013, from -0.5% to -0.7%. The ECB will set rates next Thursday, but the possibility of a rate cut will likely to preoccupy the markets during the course of the week.

There was more disappointing news out of the US on Friday, as GDP fell below expectations. With a long string of weak releases for the past month, the GDP reading appeared to underscore the recent disappointing data. The key indicator improved sharply, climbing from -0.1% to 2.5%.  However, the markets had anticipated a gain of 3.1%. The weaker than expected reading from one of the most important economic indicators should serve as a wakeup call that  the US economy is hitting turbulence, which could affect the US dollar.

EUR/USD for Monday, April 29, 2013

1.3091 H: 1.3100 L: 1.2999

EUR/USD Technical

EUR/USD is trading quietly in Friday trading. The pair is receiving support at the critical 1.30 line. This line is a weak one, and was tested earlier today. There is a stronger support level at 1.2960. On the upside, the pair faces resistance at 1.3050. The next resistance level is at the round number of 1.3100.

• Current range: 1.3000 to 1.3050

Further levels in both directions:

• Below: 1.3000, 1.2960, 1.2880 and 1.2820
• Above: 1.3050, 1.31, 1.3170 and 1.3240

OANDA’s Open Position Ratios

The EUR/USD ratio is pointing to movement towards short positions in Monday trading. This is not reflected in the pair’s current movement, as the euro has posted some gains to start the week. The activity in the ratio could be a sign that we are in for a correction and the dollar will rebound.

The euro has started off the week with gains, thanks to positive sentiment over the formation of an Italian government. We could see some further movement from the pair, as we wait for the release of German CPI and US Pending Home Sales later today.

EUR/USD Fundamentals

• All Day: German Preliminary CPI. Estimate -0.2%.
• 8:10 Eurozone Retail PMI. Actual 44.2 points.
• 9:12 Italian 10-year Bond Auction. Actual 3.94%.
• 12:30 US Core PCE Price Index. Estimate 0.1%.
• 12:30 US Personal Spending. Estimate 0.2%.
• 12:30 US Personal Income. Estimate 0.4%.
• 14:00 US Pending Home Sales. Estimate 1.1%.

*Key releases are highlighted in bold

*All release times are GMT

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