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Euro Drops On Prospects Of EU Instability

Dear Traders,

Italy votes ‘No’ and the euro falls. The single currency dropped more than 1% against the U.S. dollar after Prime Minister Matteo Renzi‘s program of constitutional reform was rejected by Italian voters by a clear majority in Sunday’s referendum. Renzi said he will hand in his resignation to President Sergio Mattarella on Monday and while there are fears the vote could further shake up Europe’s financial stability, investors are selling the euro and Italy’s bonds as they see Italy as the biggest risk to the future of the eurozone. Markets now assess the risk of early elections and if they happen, the eurosceptic Five-Star Movement could campaign on a promise to hold a referendum on Italy’s membership in the euro.

While a ‘No’ vote was already priced into Italy’s government bonds the most immediate concern is a potential banking crisis and the risk of contagion around Europe. So all in all, short-term prospects for the euro appear to be somewhat gloomy so let’s take a brief look at the technical picture.

EUR/USD

In an initial reaction to Renzi’s defeat, the euro dropped towards 1.05 but it was able to stabilize around 1.0560. If it falls again below 1.0530 we see a higher likelihood of further losses towards the descending trend line which is currently at 1.0470/60. Below 1.0460 however, the dollar rally could accelerate with the euro heading towards parity. For the euro to gain some ground it might need to stabilize above 1.0585 and then head back towards the 1.0660-resistance.

chart_eur_usd_4hours_snapshot5-12-16

Austria‘s presidential vote was however received with relief after Alexander Van der Bellen defeated Norbert Hofer, sending “a signal of hope and positive change throughout Europe”. The Austrian vote was seen as a victory over the populist sentiment in Europe.

The focus now shifts to the European Central Bank meeting on Thursday and while a period of political uncertainty might follow after Renzi’s defeat, the ECB could announce even more aggressive measures to support the European economy.

From the U.S. we do not have any market-moving economic reports scheduled for release this week. The ISM Non-Manufacturing index is due for release today at 15:00 UTC but given the fact that NFP numbers have been released before the report, it should be of less importance.

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Is The U.S. Dollar Poised For A New Round Of Strength

Dear Traders,

The U.S. dollar regained some of its strength, pushing the euro and cable lower. While the euro stopped its fall slightly above 1.0560, the British pound turned out to be Monday’s worst performer and dropped towards 1.2385. British companies are increasingly pessimistic about the future outlook and with the Brexit debate intensifying, the pound remains vulnerable to larger losses. We currently see a higher likelihood of a bearish breakout in the GBP/USD but we recommend traders waiting for a break below 1.2350 in order to sell sterling.

European Central Bank President Mario Draghi warned that Britain, rather than the Eurozone, would be the first to suffer from the consequences of a Brexit. When speaking at the European Parliament in Brussels on Monday he described a cocktail of political risks hanging over the global economy, including the Brexit vote, Donald Trump’s election and the looming Italian referendum. Draghi also signaled the ECB’s readiness to continue its monetary stimulus. At the ECB meeting next week, the central bank is widely expected to announce an extension of its bond-buying program.

EUR/USD – Interesting chart formation

While there are good arguments for both bulls and bears favoring one direction or another, it should be interesting in which direction the euro may be heading within the next days. Given the uncertainty ahead of the Italian referendum, the risk is to the downside but with investors staying on the sidelines in the run-up to the important vote on Sunday, the euro could also trade directionless sideways. For the time being, we expect the pair to range-trade between 1.0670 and 1.0570. Above 1.0670 it may head for a test of 1.0710, whereas a break below 1.0560 may invigorate fresh bearish momentum towards 1.0470.

chart_eur_usd_4hours_snapshot29-11-16

Important economic data for today:

13:00 EUR German Consumer Price Index

13:30 USA GDP Report

15:00 USA Consumer Confidence

(Time zone: UTC)

Daily Forex signals:

Additional daily and long-term entries are available for subscribers.

View our daily signal alerts http://www.maimar.co/category/daily-signals/

Subscribe to our daily signal service http://www.maimar.co/signals/

We wish you good trades and many pips!

Any and all liability of the author is excluded.

Copyright © All Rights Reserved 2016 Maimar-FX.

www.maimar.co