Political developments in the euro zone allowed the shared currency to recover last week, but can this positive sentiment last?
Medium-tier leading indicators
There really is no standout top-tier catalyst lined up from the region this week, but it would help to keep tabs on these leading indicators to gauge how high-profile reports might turn out later on.
Services PMI readings from the euro zone’s top economies are on the docket for Tuesday’s London session, and the bloc will also print its retail sales reading then.
Afterwards, German factory orders, French trade balance, and Italian retail sales are all on Thursday’s schedule. Friday has industrial production numbers from France and Germany, along with the trade balance from the latter.
ECB Governor Draghi’s speech (June 5, 1:00 pm GMT)
One possible big mover for the shared currency is head honcho Draghi’s testimony in a panel discussion called “Two Presidents’ Talk” at the central bank’s 20th anniversary event.
As you’ve probably guessed, former ECB Governor Jean-Claude Trichet is due to speak as well. I’ve missed that dude!
As with central bankers speeches, most market watchers keep their eyes and ears peeled for any clues on future monetary policy moves. Any remarks on ending their QE program this year and starting to tighten soon after could bring positive euro vibes.
Last Week’s Price Review
The euro is currently on track to closing the week in second place (as of 1 pm GMT). This is a reversal of fortune since the euro was the second weakest currency last week. The euro’s good performance this week would also finally put the euro on the winning side after four consecutive weeks of net losses.
The euro had a good run this week thanks to the (mostly) positive political developments in Italy and Spain. But if you want the details, then read on.
Most euro pairs started the new trading week by gapping higher, thanks to news over the weekend that Italian President Sergio Mattarella refused to endorse Paolo Savona, a known Eurosceptic, as the next economy minister.
However, the euro got torpedoed later on when Giuseppe Conte resigned in the wake of Mattarella’s refusal to endorse Paolo Savona as the economy minister since expectations began to grow that Italy may be headed for fresh elections. Also, there were calls for Matterella to get impeached because of his action.
And the news that Spanish PM Mariano Rajoy would face a no-confidence vote on Friday also likely helped to drag the euro lower.
The euro finally found support after 5-Star Movement Leader posted on his Facebook page that (emphasis mine):
“If the Government of Change had left, today we would have a strong political government that would already be working to meet the other EU countries and explain to them the details of our economic policy that has never foreseen the exit from the euro.”
However, the euro’s would-be recovery got cut short when ANSA broke the news that Mattarella was being pressured to call for fresh elections by July 28.
The selling pressure eventually abated come Wednesday, thanks to separate reports from Corriere Della Sera and ANSA that cited Luigi Di Maio as saying that the 5-Star Movement is no longer thinking about impeaching Italian President Sergio Mattarella.
Bulls then began piling up on the euro after rumors began to spread that the 5-Star Movement and League are renewing efforts to form a coalition government.
And more euro bulls came out when rumors spread that the 5-Star Movement and League were supposedly trying to compromise with Mattarella by choosing somebody else other Savona to be the next economy minister.
Oddly enough, the euro began to get sellers after the Euro Zone’s inflation report managed to beat expectations. Other than profit-taking, there’s no clear reason why.
Anyhow, the euro later regained its mojo when the 5-Star Movement and League announced that they have finally hammered out a new coalition deal. And Conte was later re-appointed and given a mandate by Mattarella to form a new government, which caused the euro to steadily trade higher against its peers after that (except against USD).
And while Spanish PM Mariano Rajoy got ousted on Friday, that didn’t seem to have a large effect on the euro’s price action, likely because Rajoy ws succeeded by Pedro Sanchez Pedro Sanchez, who’s viewed as pro-E.U. and pro-euro. Sanchez’s Socialist PSOE Party only has 84 seats (out of 350) in Parliament, though, so his rise could still be a potential source of uncertainty.
The Swiss Franc
The Swissy is turning in a mixed performance this week (as of 1 pm GMT). So, did EUR and CHF pairs finally part ways?
Well, EUR and CHF pairs were decoupled more often than not this week, that’s for sure. And that’s likely because the euro was initially driven lower by political uncertainty. However, political uncertainty means higher safe-haven demand for the Swissy.
And the most obvious instance of decoupling happened during Tuesday’s U.S. session and after ANSA released a report about Mattarella being pressured to call for fresh elections by July 28, which kicked the euro lower but likely sent a traders rushing to the safe-haven Swissy for protection.