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Political uncertainty turned out to be the main drag for the euro last week while the franc was all over the place. Can these currencies perform better this time?

Another round of updates from Italy

There was no shortage of political headlines stemming from Italy last week, but developments seemed to bring in more jitters rather than clarity. In case you need help keeping up, my buddy Forex Gump got yo back with this primer on Italy’s political situation.

In the latest turn of events over the weekend, Italian President Sergio Mattarella is blocking the candidacy of Paolo Savona for the economic minister post.

Now Savona is the top pick of Prime Minister-designate and political newbie Giuseppe Conte, so failing to resolve this deadlock means that there’s still a risk that the freshly-formed coalition could still fail.

Overall risk sentiment

As with most currencies, risk aversion has played more or less a pivotal role in determining whether or not they could stay afloat.

Over the next couple of days traders might continue to pay close attention to updates on the U.S.-China trade negotiations, the U.S.-North Korea peace talks (or any cancellations), and bond yields.

Last Week’s Price Review

The Euro

The euro had another rough time this week and is currently the second worst-performing currency of the week (as of 1 pm GMT). The euro has been on the losing side for four consecutive weeks already.

Overlay of EUR Pairs: 1-Hour Forex Chart
Overlay of EUR Pairs: 1-Hour Forex Chart

The euro started the week on a mixed note before trying to jump higher on Tuesday. There was no clear catalyst for the the jump, but as marked above and as noted in Tuesday’s morning London session recap, that appears to have been a reaction to news that China will open up its car market by slashing tariffs on imported cars from 25% to 15%, effective July 1 of this year, which is goods news for Germany, the Euro Zone’s largest economy.

Sadly for euro bulls, the would-be rally failed to get off the ground  when selling pressure returned after ANSA released a report that claimed that the 5-Star Movement and the League party supposedly want Paolo Savona to be the new economy minister, which is rather disconcerting for investors since Savona is vehemently anti-euro.

After that, the euro’s price action became more mixed until fresh sellers arrived when the Euro Zone’s latest PMI readings missed big time on Wednesday.

To be more specific, the manufacturing PMI for the Euro Zone as a whole came in at 55.5 (56.1 expected, 56.2 previous), which is an 18-month low. The Euro Zone’s flash services PMI reading, meanwhile, came in at 53.9 (steady at 54.7 expected), which is a 16-month low.

The euro then traded mostly lower against its peers after that before becoming more mixed when Wednesday’s U.S. session rolled around.

As a side note, the ECB’s meeting minutes were released on Thursday. However, that was a dud. And as mentioned in Thursday’s London session recap, that was likely because the most of the stuff in the minutes were already discussed during the ECB presser, so the minutes didn’t really offer anything new or surprising.

Anyhow, the euro traded roughly sideways after that. Most euro pairs did have a noticeable tilt to the downside on Friday, though. And market analysts blamed that on lingering worries over the political situation in Italy, as well as growing political uncertainty in Spain because of a possible vote of no confidence against Spanish PM Mariano Rajoy

The Swiss Franc

The Swissy was last week’s champion but it got knocked down the ranking table this week since it’s currently in third place (as of 1 pm GMT).

Overlay of CHF Pairs: 1-Hour Forex Chart
Overlay of CHF Pairs: 1-Hour Forex Chart

So why didn’t the Swissy get dragged lower with the euro? Did the euro and the Swissy finally part ways?

Well, EUR and CHF pairs still had roughly similar price action.But as you can see in the sample pairs below, the euro and the Swissy temporarily parted ways on Tuesday and the first half of Wednesday since the euro was getting hammered while the Swissy caught a bid.

As mentioned earlier when we discussed the euro, the euro began to encounter selling pressure after word got around that the 5-Star Movement and the League party supposedly want Paolo Savona to be the new economy minister.

This is bad for the euro because Savona is notorious for being a very vocal critic of the E.U. and the euro.

However, Savona being the top pick for economy minister means higher uncertainty, which is likely why the safe-haven Swissy got a boost. Also, risk aversion was the raging at the time because of renewed concerns over North Korea.

Most Swissy pairs also turned higher on Friday while most euro pairs slipped, with lingering concerns over the Italian politics and growing political uncertainty in Spain being cited as the reasons for the euro’s slide. Of course, all that uncertainty likely spurred safe-haven demand for the Swissy.

NZD/CHF (inverted, red) vs.  EUR/NZD (black): 1-Hour Forex Chart
NZD/CHF (inverted, red) vs.  EUR/NZD (black): 1-Hour Forex Chart
CAD/CHF (inverted, red) vs.  EUR/CAD (black): 1-Hour Forex Chart
CAD/CHF (inverted, red) vs.  EUR/CAD (black): 1-Hour Forex Chart
USD/CHF (inverted, red) vs.  EUR/USD (black): 1-Hour Forex Chart
USD/CHF (inverted, red) vs.  EUR/USD (black): 1-Hour Forex Chart