The EUR/USD Continued to Tumble as Political Unrest is Percolating

The EUR/USD continued to tumble as uncertainty in Europe, weighed on riskier assets. Political events in Spain and Italy aside, the focus this week is on preliminary May inflation data, which is expected to show an uptick in headline rates.  The on again off again summit between the U.S. and North Korea continue to drive volatility.

Technicals

The EUR/USD continued to tumble and is poised to test near support at the November lows at 1.1550.
Resistance is seen near the 10-day moving average at 1.1746. Momentum is negative as the MACD (moving average convergence divergence) histogram prints in the red with a declining trajectory which points to a lower exchange rate. The exchange rate is oversold and as it approaches support traders might consider taking profits.  The fast stochastic is printing a reading of 5, below the oversold trigger level of 20 which could foreshadow a correction.

Fed’s Kaplan said normalizing rates gradually is appropriate

Fed’s Kaplan said normalizing rates gradually is appropriate since the Fed wants to be attuned to the possibility that financial trends can change quickly. Fed’s Bostic said there are a host of reasons for doing so, not the least of which is that this is what the Fed has told people will do. Kaplan feels the Fed should make room for debating the Fed’s current policy framework on a regular basis. He again noted the potential adjustment to IOER, which would be done as a reaction to market dynamics and to help set the funds rate more toward the middle of the policy band. The comments are coming out of a panel discussion from the Dallas/Atlanta Fed conference on technology disruption and labor.

ECB’s Villeroy stresses need for common backstop in resolution fund

ECB’s Villeroy stresses need for common backstop in resolution fund. The Bank of France Governor said during a news conference that a backstop is needed fast. He didn’t mention recent political events that have send jitters through Eurozone markets, but with the ECB preparing the end of net asset purchases, the financial jitters for many highlight the need for more risk sharing and a joint backstop.

Italian assets rally despite political chaos

Italian assets rally despite political chaos. The populist coalition’s attempt to form a government failed as President Mattarella rejected euro-skeptic candidate as finance minister. Market’s have welcomed the decision, while the anti-establishment parties are attacking Mattarella amid speculation that events were partly engineered by La Lega, which hopes to strengthen its position in new elections. Mattarella meanwhile is reported to meet with former IMF official Cottarelli to ask him to form a technical government that can lead Italy until early elections.