EUR / USD: Italy, Draghi and the "Brussels happy-end"

The European currency is showing modest growth today. Uncertainty still prevails in the market, but still, the events of recent days allow traders to demonstrate cautious optimism. The EU summit ended predictably, without any unpleasant surprises. This fact indirectly supported the single currency. On the one hand, the outcome of the meeting was predictable, but, on the other hand, the unexpected demarche of the Spaniards made investors nervous. Madrid kept market participants in suspense until Saturday evening. As a result, the "Brussels happy-end" has kept its hopes for soft Brexit, although the main battles on this issue are still ahead. In early December, the British parliament will consider the draft deal. That is why traders were cool about the outcome of Sunday's summit. Theresa May won the fight, but not the battle.


The positive result of the Sunday meeting allowed the single currency to stay in the area of Friday's close, but no more. The main reason for today's temporary strengthening of the euro was Italy, or rather, the "peace-loving" rhetoric of the members of the Italian government. Let me remind you that last week the European Commission for the second time rejected the draft budget of this country, pointing to an overestimated level of its deficit. Moreover, the EC members recommended starting a disciplinary procedure against Italy, which in turn is fraught with a fine of one and a half billion euros. However, Brussels at the same time gave the Italians the opportunity to "think again" and independently make changes to the main financial document of the country. And although Rome initially accepted the decision of the European Commission "in hostility", today's events suggest that Italians are not eager to exacerbate the situation and are ready for compromise.

So, today the representatives of the Italian government decided to hold an extraordinary meeting, at which they again discussed the draft budget. It should be noted right away that at the moment, there is no reliable information on the results of this meeting. The market focuses only on insider leaks and indirect signs. According to one of the Italian editions, Rome can reduce the deficit to 2% (whereas now this figure is 2.4%). It is difficult to say whether such a step will satisfy the EU leadership. Initially, they demanded that this level is reduced to 0.8%. However, given the many months of the epic around this issue, any hints of compromise have a positive impact on the euro. Moreover, on the eve of the Deputy Prime Minister of Italy, as well as one of the ministers made very transparent hints about this.

However, the results of today's meeting were not disclosed. According to unofficial information, Rome agreed to reduce the level of the budget deficit, but it is unknown to which level it is. According to preliminary information, the members of the European Commission reacted positively to the new proposal of the Italians, but again, the details of the Italians were not disclosed. The market has repeatedly received false signals on this issue, so traders are clearly not in a hurry with the conclusions. The euro-dollar pair has grown a bit today, but the price has failed to return to the 14th figure, not to mention consolidating in this area.

Mario Draghi, who spoke in the European Parliament this afternoon, also had a certain pressure on the euro. And although he did not say anything new, the tone of his speech was clearly "pigeon". First, he reiterated that key macroeconomic indicators have recently shown a slowdown and are below forecast levels. Secondly, the policy of the ECB will be stimulating after the end of QE, that is, after December of this year. Thirdly, the risks of protectionism have not lost their relevance and still provoke volatility in the markets. In other words, Mario Draghi reported long-known facts that he had previously repeatedly voiced. Nevertheless, the EUR / USD bulls could not develop their success against the background of the uncertain position of the head of the ECB and dubious information about the prospects for the Italian budget.

The controversial fundamental background (or rather, the lack of strong information drivers) returned a pair of EUR / USD almost to the level of discovery. Traders in anticipation of strong information channels, this week we will learn the dynamics of inflation in Germany and the Eurozone, the US GDP (second estimate for the third quarter) and the protocol of the last Fed meeting. In addition, in the coming days, representatives of the Federal Reserve will take the floor, including Jerome Powell and his deputy, Richard Clarida. In other words, we are waiting for quite a busy week, so traders have taken a waiting position.


In terms of technology, the EUR / USD pair could not consolidate above the Bollinger Bands midline on the daily chart today, 1.1360. This suggests that the pair of bears can seize the initiative and reduce the price to the base of the 13th figure. In general, the pair has a larger scale potential for its decline, right up to the middle of the 12th figure (the bottom line of the Bollinger Bands on D1). If in the coming days the Italian question will remain in limbo, the pair will follow the dollar index, which resumed its growth to the area of 97 points.

The material has been provided by InstaForex Company -