EUR/USD Analysis

The Big Coalition, The Fiasco And The Trump-ets

In the past weekend, there were some significant decisions made in two of Europe’s major countries.

While in Germany the approval of the social SPD party led to a big coalition, which enables Angela Merkel to form her fourth government now; the elections in Italy, despite having already proclaimed the Cinque Stelle as the winning party, resulted in a hung parliament which makes the formation of a government in the foreseeable future unlikely, and clearly sows division in Italian society. This “divided” climate seems to echo all over Europe these days.

Elsewhere across the big pond the “Trump-ets”  sounded  when the White House made clear that the tariffs on steel and aluminum where not just directed at countries such as China, but that they would also apply for European “partners” and especially as concerns the car industry! So one could say that the “Trump-ets” are sounding the onset of a trade war.

As of now, the most recent Trump tweets pushed the USD lower against its major rivals, however the greenback still traded higher against commodity currencies.

Technichal analysis:

On the weekly chart the EUR/USD has been within a downward trend since Summer 2008. This trend-line comes in at around 1.2620, and this is the mark the EURUSD would likely require to push through to trade in an actual long-term upward trend for the very first time since 2008. This is why the EURUSD is currently at risk to run out of steam after it hits that mark.

On the daily chart the EURUSD shows a few signs of slight weakness, however it did manage to stay well and strong above the 1.22 mark. Should the EURUSD manage to trade back above 1.2380 into the 1.24’s, one could argue for a continuation of the upward trend on the daily chart. Only a break below the 1.22 would appear to neutralize the upward pressure.

Author’s opinion:

I think, as long as the 1.22 is holding, and now also considering that Germany is well on its way to a continuation of the big coalition and has higher chances of political stability (regardless of how one may judge this personally in a political context) the EURUSD seems to have good chances to continue on its current ascent. Also considering that the ECB will have little possibility left to not normalize monetary policy mid-term, or at least makes steps towards some hawkish measures most likely within this year, the overall EU climate seems to favour the appreciation of the EURUSD.

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