EURUSD had a Flat Opening for the Week over Lack of Progress in European Political Climate

The EURUSD pair opened for the week on flat note and has remained range bound across Asian market hours. The pair continues to move well inside 1.16 price handle as the pair failed to grab hold of 1.17 price level twice during Friday’s trading session. While the course correction seems to be in Euro’s favor the reality is that EUR bulls are having a hard time gaining momentum as tense European political scenario continues to grip European markets. While Italy managed to form a government last week, Spanish government saw ousting of Prime Minister Mariano Rajoy through vote of no-confidence in parliament and the position was immediately replaced by Pedro Sanchez of Spanish Socialist Workers Party.

EURUSD Stable

Further, Nationalists regained control of Catalonia’s government on Saturday and immediately called for independence talks. Euro bulls are also facing problems because of trade war issues post announcement made by US President Trump last week to impose tariff of import of Aluminum and Steel from Europe, Canada & Mexico. US is also on trade war with Chinese government and all government from all four parties mentioned above have decided to fight back with impost of tariff on US products. If this tit-for-tat tariff situation continues Euro bulls are expected to lose all momentum in short term. A more broad-based trade-war will likely also lead to a significant downturn in the global growth momentum. Something that usually also coincides with a stronger USD. But obviously one-sided tariffs imposed on US imports will lead to structurally higher prices in the US, which should weaken the USD fair value from a PPP-perspective.

Currently EUR bulls are on lookout for further progress related to trade and tariff wars in near future as Analysts acknowledge that a further escalation of Trump’s trade rhetoric at the G7 summit next week or a potential re-pricing of the Italian risk premium in the EUR are the two biggest upside risks for EUR/USD currently. The macro calendar remains relatively light this week and there are no major releases in Europe during today’s market hours. Meanwhile, the probability of three more Fed rate hikes this year has gone up after Friday’s strong US non-farm payrolls report. The common currency is expected to face pressure from US greenback during today’s trading session. Expected support and resistance for the pair are at 1.1625 / 1.1590 / 1.1550 and 1.1700 / 1.1735 / 1.1770 respectively.