EURUSD – uncertainty from Italy election was partially offset by German SPD vote; daily cloud top holds dips for now
The Euro stands at the back foot at the beginning of European session on Monday and returned below 1.23 handle, after upside attempts in early Asian trading were rejected at 1.2364. Fresh easing pressures the top of rising daily cloud (1.2264) which contained pullback from 1.2555 peak and underpinned recovery rally on Thu/Fri. Recovery stalled on initial attack at important resistances at 1.2350/55 zone (30SMA / daily Kijun-sen / 50% retracement of 1.2555/1.2154 pullback), lacking for now stronger bullish signal expected on break. Daily MA’s are in mixed setup, but 14-d momentum is returning to negative territory and signaling existing downside risk. Daily cloud top marks key near-term support, firm break of which would weaken near-term structure and turn bias into negative mode, risking further weakness and possible retest of correction low at 1.2154, posted on 01 Mar. On the other side, hopes for fresh attempts higher would remain in play while cloud top contains dips, however, close above cracked 30SMA (1.2348) is seen as minimum requirement to signal further recovery and expose next target at 1.2400 (Fibo 61.8% of 1.2555/1.2154 bear-leg). Initial outcome from highly anticipated Italian election show no major blocs winning an outright majority, but negative signal came from stronger than expected showing from euro-skeptic bloc, which could undermine the single currency. Final results are expected later today and should be generally in line with expectations, with markets turning focus on coalitions that will be formed after the election as none of parties and blocs won an absolute majority. Initial worries on the outcome of Italian election was partially offset by vote of German SPD party to back another coalition with Chancellor Angela Merkel’s conservative, which would provide Merkel another term as German chancellor. Series of Services PMI data from Eurozone countries are in focus today, with forecasts showing no changes from the previous release. EU retail sales are expected to rise in Jan according to forecasts at 0.3% m/m vs -1.1% in Dec and 2.1% y/y in Jan vs 1.9% in Dec, which could inflate the Euro on stronger upside surprise.