Euro Initially Inches Higher On Italian Vote

 | Mar 05, 2018 05:58AM ET

The euro initially rose towards 1.2365 at Monday’s open after the results of the Italian vote showed the Centre-right coalition ahead of the Eurosceptic Five Star Movement. The seat projections, however, hinted that the country could be heading for a hung parliament as there is no clear winner. The euro was thus unable to extend its gains. The final vote tally will be released until approximately 13:00 UTC today.

The euro also strengthened on news that the Social Democrats in Germany backed a government coalition with Angela Merkel’s bloc.

We have some critical event risk ahead this week, with the ECB meeting (Thursday) and February’s U.S. jobs Report (Friday) being of note. The ECB is unlikely to change its monetary policy at this meeting but it all hinges on the rhetoric of ECB President Draghi after the central bank’s reluctance to take more definitive steps towards policy normalization. The ongoing euro strength, as well as trade tensions and inflation below the ECB's target are making it easier for policy makers to justify that easing will continue in the near-term. Moreover, the ECB will produce a new set of Staff Economic Projections at this March meeting.

It should be an interesting trading week in terms of upcoming event risks but traders should bear in mind that U.S. President Trump’s call to arms in a trade war could overshadow economics or rate decisions.

From a fundamental perspective, this week starts off with economic reports from the U.K. and U.S. such as the U.K. Services PMI (9:30 UTC) and the Non-Manufacturing ISM Report (15:00 UTC).

EUR/USD
The technical indicators generally favor the upside. Traders should now look for the euro to be bought on dips as there is higher likelihood for upcoming pullbacks before the euro might be poised to resume its uptrend.

If there is a sustained break above 1.24 we may see the euro rallying towards 1.2550 and 1.2650. For bearish momentum to accelerate it would need a renewed break below 1.2250/40. A crucial support is seen at 1.21.