The EUR/USD Rebound Near Support as the Currency Pair is Oversold

The EUR/USD ran into support and bounced off session lows at yields moved lower.  Recent developments in Italy is generating concern which has weighed on the currency pair. The Fed’s Bostic said that FOMC is close to its dual goals, while the Fed’s Chicago National activity index rose in line with expectations.

Technicals

The EUR/USD bounced near support near the December lows at 1.1725. Resistance is seen near the 10-day moving average at 1.1850. Short-term momentum has turned positive as the fast stochastic generated a crossover buy signal in oversold territory. The current reading on the fast stochastic 11, below the oversold trigger level of 20 which could foreshadow a correction.

U.S. Chicago Fed’s National Activity index rose

U.S. Chicago Fed’s National Activity index rose 0.02 points in April to 0.34 after falling 0.41 points to 0.32 in March which was revised from to 0.10. January was revised lower to -0.35 from -0.26, with December now at 0.16 from 0.22. The 3-month moving average doubled to 0.46 from 0.23 (revised from 0.27). Of the 85 components, 50 made positive contributions, and 35 made negative contributions. The 0.86 was the highest December 2006.

Fed’s Bostic repeated the Fed is close to its dual goals

Fed’s Bostic repeated the Fed is close to its dual goals on maximum sustainable employment and price stability, in his prepared remarks on the economy before the Atlanta Economics Club. He projects 2018 growth in the 2.5% area, with activity fading to 1.75% over the medium term. The economy is close to full employment, though acknowledged that wage growth remains tepid. While measured inflation is effectively on target, he wouldn’t be surprised if prices overshoot the 2% goal modestly, even with further removal of accommodation. He said the important characteristic of a “sound monetary policy framework is that it provides a credible nominal anchor, while maintain flexibility to address changing circumstances,” and he added he could see some form of “flexible price-level targeting.”

ECB’s Nowotny said Italy plans create a lot of nervousness

ECB’s Nowotny said Italy plans create a lot of nervousness. The Austrian central bank head added that he hopes the actual policies will be “much wiser” than the proposals. Cautious words, also with regard to inflation as he stressed that the Eurozone economy is not overheating and that inflation won’t rise dramatically. So not much there to give his view on the next policy decision away.

Lawyer Giuseppe Conte front runner in Italy’s search for Prime Minister

Lawyer Giuseppe Conte front runner in Italy’s search for Prime Minister. La Lega and Five Star Movement have reportedly agreed to nominate private law professor Giuseppe Conte in a further step towards a governing coalition. Conte is a member of the M5S but has no direct political experience, although he is the head behind the anti-establishment party’s promise to abolish more than 400 “useless laws”. He also called for a tightening of Italy’s anti-corruption laws. 94% of M5S members backed the government program hammered out with La Lega, whose members voted with a majority of 91% i favour of the unlikely union.

President Mattarella will need to ratify the choice of prime minister, the program and the cabinet lineup before the parties face a vote of confidence in both houses of parliament. The final program dropped some of the most controversial demands, but still has plenty to set Italy on confrontation course with the ECB and the rest of the EU. Still, the choice of Premier seems to have helped bonds and stocks to move off early lows during the course of the morning. Maybe markets are hoping, like Nowotny, that the final policies are less controversial than initial plans and at the very least yet another round of elections may be avoided for now.