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The EUR/USD Tumbles as Spain is Headed for Snap Elections

By:
David Becker
Published: May 25, 2018, 13:24 UTC

The EUR/USD moved lower on Friday ahead of a potential no-confidence vote against Spanish Prime Minister Rajoy, unless he calls for snap elections.  The

GBP/USD daily chart, May 25, 2018

The EUR/USD moved lower on Friday ahead of a potential no-confidence vote against Spanish Prime Minister Rajoy, unless he calls for snap elections.  The drop in the currency pair comes despite a better than expected German IFO report. A softer than expected U.S. Durable Goods orders report took some of the luster out of the Greenback.

Technicals

The EUR/USD attempted to move higher but was rejected near resistance at the December lows near 1.1725, and quickly started to move lower. Support is now seen near the November lows at 1.1525. Momentum remains negative as the MACD (moving average convergence divergence) histogram prints in the red with a downward sloping trajectory which points to lower prices. The fast stochastic also recently generated a crossover sell signal, but is printing a reading of 7, well below the oversold trigger level of 20 and could foreshadow a correction.

German Ifo reading stabilized

German Ifo reading stabilized. The headline number remained steady at 102.2, with April revised up from 102.1 reported initially. So finally, a stabilization in the index, after 5 months of decline. As expected the current conditions indicator improved while the expectations reading fell back slightly to 98.5 from 98.7. The breakdown showed a slight dip in the manufacturing diffusion index, which gives the balance of positive and negative answers, but sentiment improved across services, trade and construction sectors. All in all a cautiously positive report that backs expectations for a pick up in GDP growth in the second quarter of the year, but the fact that the expectations reading corrected for a third months highlights that the balance of risks remains tilted to the downside.

Spain may be heading for snap elections

Spain may be heading for snap elections. Centrist party Ciudadanos, which holds the balance of power in parliament, said it is ready to back a no-confidence vote against Prime Minister Rajoy unless he calls snap elections. The Socialists, the biggest coalition party today submitted a no-confidence motion against the prime minister after a National Court convicted former officials from the governing party of running a multimillion-euro racket. Rajoy’s chances of staying the full term seems minimal now.

UK second release Q1 GDP was unrevised

UK second release Q1 GDP was unrevised at 0.1% quarter over quarter growth, and 1..2% in the year over year comparison, as had been widely anticipated. The ONS stats office reports that while the bad weather that was seen during the quarterly, particularly in March, had some impact on the economy (particularly in construction and some areas of retail), the overall effect was limited, with partially offsetting impacts in energy supply and online sales. The slowing in growth was partly attributed to a deceleration in consumer-facing industries. The data release has had little market impact. The ONS take on the weather is a little at odds with the BoE view, with Governor Carney saying during parliamentary testimony this week that “temporary, idiosyncratic factors” slowed Q1 economic activity.

U.S. durable goods orders fell 1.7% in April after March’s 2.7% increase which was revised from 2.6%. Transportation orders fell 6.1% after the prior 6.9% gain. Excluding transportation, orders climbed 0.9% versus a 0.4% gain previously. Nondefense capital goods orders excluding aircraft were up 1.0% from -0.9%. Shipments dipped 0.1% from 0.7%  previously, with nondefense capital goods shipments ex-aircraft up 0.8% versus -0.7% (revised from 2.2%). Inventories were up 0.3% from 0.2% (revised from 0.1%). Despite the headline decline, it’s a rather healthy report.

ECB’s Liikanen said Italian politics won’t define ECB decision

ECB’s Liikanen said Italian politics won’t define ECB decision. The government council member repeated that the ECB must be patient, persistent and prudent, while sounding cautiously optimistic on inflation. So the ECB remains on course to phase out QE this year, but amid an increasingly cautious stance in the light of mixed signals on growth.

About the Author

David Becker focuses his attention on various consulting and portfolio management activities at Fortuity LLC, where he currently provides oversight for a multimillion-dollar portfolio consisting of commodities, debt, equities, real estate, and more.

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