EUR/USD struggles for direction near 1.1130
- EUR/USD remains fragile near weekly lows in the 1.1130/20 band.
- Declining yields, trade, Italy, all weighing on spot.
- US advanced Q1 GDP figures coming up later in the day.
The sentiment around the European currency remains fragile as markets enter the second half of the week, taking EUR/USD to the 1.1130/20 band, or weekly lows.
EUR/USD vulnerable to trade jitters, Italian politics
The pair is trading without a clear direction and looks to reverse three consecutive daily pullbacks, although serious bullish attempts remain capped by trade concerns, shrinking German yields and the potential escalation in tensions between Brussels and Italy over fiscal issues.
In this regard, German yields of the 10-year reference dropped to the lowest level since July 2016 at -0.18% on Wednesday, where they seem to have met some initial contention.
Also collaborating with the downbeat mood, global growth concerns remain unabated on the back of the deteriorating scenario in the protracted US-China trade war.
Later in the session, preliminary inflation figures in Spain will be worth looking at in Euroland, whereas a more interesting docket emerges across the pond: another revision of Q1 GDP, Trade Balance figures, weekly Claims and Pending Home Sales.
What to look for around EUR
Recent data releases in Euroland and Germany have poured cold water over the idea that some healing process could be under way in the region, re-shifting the focus to the ongoing slowdown and its probable duration and extension. This view has been reinforced in recent ECB minutes, where the Council appeared unconvinced about a pick up in the economic activity in H2 2019. That said, the current ‘neutral/dovish’ stance from the ECB is expected to persist for the remainder of the year and probable through H1 2020. The broad-based risk-appetite trends and USD-dynamics should dictate the sentiment surrounding the European currency for the time being, all in combination with the now stalled US-China negotiations and potential US tariffs on EU products. On the political front, Italian politics has resurfaced as a source of uncertainty and volatility, all gyrating around the country’s discomfort with EU fiscal rules.
EUR/USD levels to watch
At the moment, the pair is advancing 0.04% at 1.1135 and a breakout of 1.1215 (high May 27) would target 1.1226 (55-day SMA) en route to 1.1264 (monthly high May 1). On the other hand, the next up barrier lines up at 1.1124 (low May 29) seconded by 1.1107 (2019 low May 23) and finally 1.0905 (high Mar.27 2017).