Pound Whipsaws with Brexit Uncertainty, Euro Remains Under Pressure with Potential Breakdown of Merkel’s Coalition in Germany

  • PM Theresa May will announce her resignation timetable today, Boris Johnson, a hardline Brexiteer is seen as a top contender
  • Matteo Salvini’s probable emergence in Italy’s general elections could mean more budget clashes with EU

CURRENCY: EUR

Data Preview

  • Unemployment rate - Potential downside surprise with an increase in Unemployment rate in Germany  
  • Consumer Price Index - Potential downside surprise with GFK consumer confidence data and Retail Sales missing estimates
  • Retail Sales - Potential downside surprise with a decline in Germany, the region’s largest economy’s retail sales data
  • Gross Domestic Product - likely to remain the same as forecast as Q1 Germany’s GDP held steady, in line with forecast

FUNDAMENTAL ANALYSIS ON EUR

Political turmoil in Germany weigh on the currency with Germany's two main governing parties experiencing a rattled coalition on Monday after one of Chancellor Angela Merkel's key allies, Andrea Nahles quit in the wake of poor election results as she lost the support of her party. Given that she played a key role in keeping together the coalition government, her departure could trigger an SDP's exit from the government, forcing Merkel to lead a minority of the government and form an alliance with other parties or face an early election, adding to the political uncertainty.

Elsewhere, Italy's Salvini faces a 3.5 billion euro fine from the EU for failure to rein in its debt, putting the currency under further bearish pressure. Meanwhile, Salvini's response to the situation hammered sentiment further as he offers EU leaders a choice: to reform the EU treaties to enable fiscal expansion and allow the ECB to act as a lender-of-last-resort, or face consequences. Salvini also indicated unwavering resolve on his stance as he said that "I am not going to hang myself for some silly rule, until unemployment falls to 50% we have the right to invest. We have regions where youth unemployment is 50%. We need a Trump cure, a positive fiscal shock to reboot the country." sending the currency tumbling further.

This week will also see the release of key data with CPI, unemployment rate and GDP data in focus where missing estimates could cause the currency to plummet further. ECB's interest rate decision will also be announced this week where interest rates are likely to remain unchanged.  


KEY TECHNICAL LEVELS ON EURUSD

EURUSD bounced off 1.1130 support highlighted last week. There is a strong descending resistance line that stretched back from March 2019 posing as most immediate resistance. Stochastic is seeing an ascending support line bounce correspondingly to price recently. The 1st resistance is at 1.1254 which is a horizontal overlap resistance.

PRICE JOURNEY ON EURUSD

Source: PsyQuation; EURUSD Price Journey (03-06-2019)
Source: PsyQuation; EURUSD Price Journey (03-06-2019)

Based on PsyQuation, EURUSD has started off the day rising strongly, reaching gains of about 0.139%.

What does this mean?

Such price journey movements where prices rise strongly at the start of the day, especially after the weekend, are commonly seen as the bulls are overpowering the bears.

Did you know monitoring the price journey movements of a currency pair can provide useful insights into its direction for the day? Wish to accurately monitor the price journey of each currency? Head over to the PsyQuation website to find out more.

Trade EURUSD through AxiTrader. Open an account here.

 

CURRENCY: GBP

Data Preview

  • Markit Manufacturing PMI - Potential upside surprise with Manufacturing Production data performing better than expected
  • BRC Like-For-Like Retail Sales - Potential upside surprise with better than expected performance from Retail Sales data previously

FUNDAMENTAL ANALYSIS ON GBP

Pound extended its decline last week as May's resignation opens up the prospect of no-deal Brexit with Nigel Farage's Brexit party leading the first wave of win in the general election. Elsewhere, Gilts dipped as BOE Deputy Governor Dave Ramsden indicated possibility of a rate hike should Brexit goes smoothly but pared those gains later in the day. Optimism for the currency remains dim as the currency held steady before dipping despite Speaker of the House John Bercow assurance that the Parliament can prevent a no-deal Brexit.

This week will also see the release of Markit Manufacturing PMI where missing estimates could add further bearish pressure on the currency. Given the political turmoil surrounding Brexit, there might be more room for decline though we do caution the volatility with the currency approaching 2016 lows.

 

The information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. Readers should seek their own advice. Reproduction or redistribution of this information is not permitted.

Other articles you might like


Brexit Turmoil Never Ends

PM Theresa May will announce her resignation timetable today, Boris Johnson, a hardline Brexiteer is seen as a top contender. Matteo Salvini’s probable emergence in Italy’s general elections could mean more budget clashes with EU.

Pound Whipsaws with Brexit Uncertainty, Euro Remains Under Pressure with Potential Breakdown of Merkel’s Coalition in Germany

PM Theresa May will announce her resignation timetable today, Boris Johnson, a hardline Brexiteer is seen as a top contender. Matteo Salvini’s probable emergence in Italy’s general elections could mean more budget clashes with EU.

EURUSD Breaks Below Key Support Line as Rate Hikes Unlikely in 2019 & ECB Makes Billions of Euros Available

The ECB kept rates on hold again but the biggest news to surprise investors was the ECB stimulus plan and Draghi's suggestion of no more rate hikes for 2019.

European Central Bank Keeps Rates on Hold, Warning of Downside Risks

The European Central Bank (ECB) kept rates on hold on the 10th of April 2019, with Draghi suggesting the strong likelihood is for rates to remain as they are for the rest of 2019.

Week Ahead: US Data Key Following Unexpected NFP & UK Fighting Over New PM

We take a look at the critical US data points following the NFP shocker, the UK fighting over the next PM and what will Draghi do next?