Euro Rebounds As Italy Fears Abate - Now what?

 | May 31, 2018 08:02AM ET

The inevitable finally happened: The euro rebounded from its oversold territory as Italian fears abate while the market’s sentiment improved. The single currency received a boost from easing tensions in Italy. It appears that populist parties wont’ be coming together to form a government, with the focus turning to new elections in late July. Consequently, the market’s risk appetite increased and the euro, as well as the British pound, benefitted from that positive sentiment.

The big question among traders is now, whether yesterday’s relief rally could be sustained, or whether the dollar will gain back traction. Let’s take a quick look at the technical picture.

h3 EUR/USD/h3

After the euro’s fall to its lowest level since July 2017, the bearish movement appeared to be somewhat overstretched and finally we saw a rebound providing some relief for the struggling euro. The single currency is now approaching overbought territory in short-term time frames and if the 1.17-1.1730-resistance area remains unbroken we might see a renewed dip into the euro’s recent downtrend channel. Given the overbought situation, sellers may take the opportunity and sell euros at higher price levels.