EURUSD: Italian Risk Remains, NFPs Loom

EURUSD News and Talking Points

Italian risk lowered but not removed.

EURUSD may weaken further on a strong US non-farm payroll print.

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EURUSD Remains Under Pressure

Italian financial markets have recovered early losses seen at the start of the week on the formation of a new Five Star Party – Northern League government. The populist government will be sworn into power later on today after Italian President Mattarella agreed to a revised list of ministers. Market thinking is that a more extreme anti-EU government has now been averted, leading to sharp falls in Italian bond yields and hefty gains in the equity space, especially Italian banking stocks. Italian 2-year bonds currently yield 0.68% after having hit a peak of 2.78% on Tuesday while the Italian 40 index currently trades at 22,380, up from Tuesday’s nadir at 22,000.

The new Italian government however is still expected to come into conflict with Brussels after the new government recently proposed large scale tax cuts, pension reforms and a basic wage for the unemployed, a series of proposals that will see Italy break the EU’s 3.0% budget deficit rule.

EURUSD has also picked back up from its multi-week lows seen earlier this week, but the rebound remains weak and further losses cannot be discounted. In Spain a new government is in the process of being sworn in, while EU/US trade wars loom large after US President Donald Trump imposed tariffs on aluminium and steel imports to the US on Thursday, provoking a sharp response from Europe. And in the more immediate future, the monthly US non-farm payrolls are released later in the session, a figure that can cause markets to move sharply, in either direction.

DailyFX analyst’s David Song and Paul Robinson will be covering US non-farm payrolls live from 13:15pm.

The latest IG Client Sentiment Indicator shows retail are 53.0% long EURUSD and have remained net-long since April 30 when the pair traded at 1.21041.

EURUSD Price Chart Daily Timeframe (June 2017 – 1 June, 2018)

EURUSD: Italian Risk Remains, NFPs Loom

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What’s your opinion on EURUSD? Share your thoughts with us using the comments section at the end of the article or you can contact the author via email at Nicholas.cawley@ig.com or via Twitter @nickcawley1

— Written by Nick Cawley, Analyst

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