London Forex Report: Italian Elections Impede Euro

London Forex Report: Italian Elections Impede Euro

London Forex Report: After US President Trump’s threat to slap tariffs on steel and aluminium imports (recall his tweet that “trade wars are good and easy to win”) and titfor-tat rhetoric from the EU who in turn is weighing a 25% tax on a broad range of US imports and Trump tweeting in response about a tax on European auto makers, it was encouraging that the S&P500 managed to stabilise on the back of a tech stock rally. Meanwhile, WSJ reported that White House economic adviser Gary Cohn could resign on Trump’s move against steel imports. However, National Trade Council director Peter Navarro suggested “there’ll be no country exclusions” and US Commerce Secretary Ross opining that “it may be pain for those particular companies but in the overall scheme of things it doesn’t mean very much”. Elsewhere, the weekend Italian elections had exit polls suggesting a hung parliament, with the near-term uncertainty likely to weigh on European markets.

CFTC numbers show large non-commercial/leveraged accounts increased their net implied short USD bias in the latest week. Meanwhile, asset manager accounts instead pared slightly their short USD balance in aggregate but remain significantly short. Markets will be confronted with a myriad of issues this week and coherent visibility may remain lacking. The imminent/potential announcement of US tariffs on steel and aluminium is expected to remain a central focus with concerns focused on the potential for geopolitical escalation (especially from China) rather than the actual mechanical impact of the tariffs. Note the current tendency to take the broad dollar lower in the interim.

NORTH AMERICA Final report from University of Michigan confirmed that consumer sentiment improved in Feb; though the index was downwardly revised to 99.7 from 99.9 in initial estimate, it was still sharply higher than 95.7 recorded in Jan.

EUROPE As expected a hung parliament is the likely result when the results are finally confirmed this afternoon. Attention will then focus on Italian President Sergio Mattarella as to who is tasked with looking for a mandate to govern. Former premier Matteo Renzi saw his share of the vote fall from 40% down to 20% and the talk has swirled that the 5 Star Movement may form an alliance with the main winners on the evening – the Northern League. But would such a left-far right alliance even get off the ground despite it being the dream ticket for former US President Trump adviser Steve Bannon. But as the BBC points out Five Star and the League have each criticised Italy’s relationship with the European Union, although neither campaigns to leave the bloc. A potential alliance between the two would be viewed with some degree of worry in Brussels. What might worry them even more is that the bloc backed by Mr Berlusconi includes his Forza Italia (Go Italy!) party, the anti-immigrant League, and the far-right Brothers of Italy. Mr Berlusconi, 81, cannot hold public office himself until next year because of a tax fraud conviction. And in a personal blow for him, Forza Italia looks likely to have been outdone by its ally, the League. Berlusconi had a pact with Matteo Salvini from the League as to who polled most would be PM. Four-time prime minister Mr Berlusconi has backed European Parliament President Antonio Tajani as his choice to lead the country. However, it is possible Mr Salvini – who has promised to deport hundreds of thousands of migrants and spoken of the “danger” of Islam, will now be eyeing the job

ASIA The Bank of Japan’s monetary policy announcement is due on Friday. More continuity seems like the probable outcome there, especially given that the recently reappointed Governor Haruhiko Kuroda spent his time last week arguing that they need to “continue monetary easing persistently”. Interestingly, towards the end of last week, things heated up as Kuroda mentioned that the “BoJ will be considering exit around fiscal 2019”. He added that “there could be a policy change before 2% is achieved”

EURUSD
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Neutral

Technical: 1-3 Day View – The daily close back above 1.2260 opens 1.2440 near term resistance is sited at 1.2370, failure here and a close below 1.22 resets focus on 1.2090

1-3 Week View – As 1.2130 now acts as support expect a test of 1.2635 as the next upside objective. Weekly close below 1.19 neutralises bullish objectives opening a test of 1.14.
Retail Sentiment: Bearish
Trading Take-away: Long

GBPUSD
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish

Technical: 1-3 Day View – 1.3715 achieved, profit taking pullback should encounter offers on a test of 1.3850/70 as this area caps look for 1.3570 as the next downside objective, a close today over 1.3915 opens 1.4046

1-3 Week View – As 1.3650 supports 1.45 becomes the next upside objective, only a close back below 1.34 would jeopardise the bullish advance
Retail Sentiment: Bullish
Trading Take-away: Short

USDJPY
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish

Technical: 1-3 Day View – As 108.44 acts as resistance 103.22 is the next downside objective, the close below 107.10 suggests return to trend confirmed on a daily close below 106.50, potential for double bottom at 105.50

1-3 Week View – The close below 108 negates the broader bullish theme and opens the psychological 100 magnet as the next downside objective, only a close above 108.50 stabilises the pair, opening 112.50
Retail Sentiment: Bullish
Trading Take-away: Short

EURJPY
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish

Technical: 1-3 Day View – Breach of 131 sets a top to target 128.50 as 132 caps corrections. A close over 133 stabilises the pair opening a retest of 135

1-3 Week View – The closing breach of 131 concerns the bullish consolidation bias opening a test of 128.50 while this area supports there is a window to retest and breach cycle highs above 137
Retail Sentiment: Bullish
Trading Take-away: Short

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