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Political updates were the main drivers of euro price action in the previous week. In the absence of major economic reports in the coming days, can the same hold true?

Italy’s fiscal & economic projections (Sept. 27)

The clock is winding down for the Italian government to finalize its fiscal and economic projections by September 27 for basis in their full budget due next month.

If you’re wondering why all eyes and ears are on this matter, Forex Gump explains why Italy’s 2019 budget is a big deal.

Finance Minister Tria will be presenting these estimates sometime during the Thursday London session, and he is widely expected to aim for a deficit that’s around 1.6% of the country’s GDP. Still, he faces a lot of pressure from both the League and Five Star political parties to allocate funds for their own spending plans, not to mention the need to comply with EU requirements.

Also, keep in mind that a leaked recording of the Italian PM’s spokesperson featured threats of a “mega vendetta” if the government doesn’t find the money for their policy promises. Good times.

Euro zone flash CPI (Sept. 28, 9:00 am GMT)

Among the other medium-tier releases from the region this week, these flash CPI readings might be the ones worth paying attention to. After all, the ECB recently upgraded its inflation outlook and traders are keen to find out if the actual numbers are keeping up.

Number crunchers predict that the headline reading could tick higher from 2.0% to 2.1% and that the core figure could rise from 1.0% to 1.1%. Stronger than expected results could put rate hike expectations back in the limelight, even as a number of political uncertainties are in play.

Last Week’s Price Review

The Euro

The euro is currently in third place (as of 1 pm GMT), so the euro may soon be marking its second week of net wins. The euro’s ranking is not yet in stone, though, since the euro’s gains against the loonie and the Swissy are razor thin.

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

The euro had a mixed start but was a net winner, thanks to a report from Corriere Della Sera claiming that the Economy Minister Giovanni Tria was determined to keep Italy’s 2019 budget deficit within 1.6% of GDP, which is below the E.U.’s 3.0% limit.

The euro also had a bullish reaction to the Bundesbank report’s positive message that “the pace of  [German] macroeconomic expansion should pick up again significantly.”

The euro was also probably feeding off the Greenback’s weakness on Monday. And some market analysts were also saying that the euro was also attracting buyers because of Brexit-related optimism.

In any case, the euro’s price action was still a mixed mess on Tuesday and most EUR pairs were essentially range-bound since most of them didn’t stray too far away from last week’s closing prices (dashed, horizontal line).

The euro did get a broad-based bearish kick at around 4:00 pm GMT, which is kinda weird since there were no direct catalysts for the euro at the time.

However, it’s possible that market players were abandoning the euro and flocking to other currencies, particularly the higher-yielders, since Trump was speaking around that time and he sounded conciliatory (despite imposing fresh tariffs) when he said the following:

“So we’ll see what happens. But we’re making a lot of headway with China. China wants to come over and talk, and we are always open to talking.”

At any rate, the euro quickly resumed trading sideways after the drop, and then turned in a mixed performance when Wednesday’s Asian session rolled around.

The euro’s price action would become somewhat uniform again during the morning London session since EUR pairs (except EUR/GBP) encountered another wave of sellers.

And as noted in Wednesday’s London session recap and as marked on the chart above, the euro began sliding after Italian Deputy Prime Minister and 5-Star Movement Head Luigi Di Maio said the following during an interview:

“The objective is not to reassure markets. The objective of the budget is to improve the quality of life of Italians.”

Moreover, the euro also appears to have been a victim of a report  from The Times, which claimed that Theresa May will reject E.U. Chief Brexit Negotiator Michel Barnier’s “improved” proposal for solving the Irish border issue.

Anyhow, the selling pressure eventually abated and most EUR pairs began trading sideways again, but began tilting slightly but broadly upwards during Thursday’s Asian session. And this slight upwards tilt would later become more pronounced when during Thursday’s London session.

There were no direct catalysts, but as noted in Thursday’s London session recap, it’s likely that the euro was just feeding off the Greenback’s weakness. But in hindsight and considering that the euro appears to have been responding to Brexit-related news, it’s also probable that the euro got a lift when Conservative Party MP and Cabinet Office Minister David Lidington said the following:

“The withdrawal agreement – we’re 85 percent…90 percent of the way to fixing the text.”

In any case, the euro’s rise quickly stalled when Thursday’s  U.S. session rolled around and most EUR pairs became range-bound again before dipping slightly on Friday.

And as noted in Friday’s London session recap, the euro’s slide was due to the Euro Zone’s disappointing PMI reports, although renewed Brexit-related jitters because of the media blitz against Theresa May may have also weighed on the euro since the euro has been rather somewhat sensitive to Brexit-related news this week.

The Swiss Franc

The Swissy is currently mixed but a net winner (as of 1 pm GMT). The Swissy is still in demand, though, so there’s still a chance that the Swissy may improve its ranking.

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

As usual, EUR and CHF pairs had similar price action. However, the Swissy was clearly much weaker on Wednesday. And as noted as Wednesday’s London session recap, the Swissy was actually THE weakest currency, far weaker than the Greenback and yen, which were also under pressure because of the risk-on vibes.

As to why the Swissy was very weak, there’s really no apparent reason, although SNB shenanigans and/or preemptive positioning ahead of the SNB statement are possible reasons.

Speaking of the SNB statement, that was effectively a dud since the SNB maintained its current monetary policy while reiterating its pledge (or threat) to “remain active in the foreign exchange market as necessary.”

The SNB also downgraded its inflation forecasts for 2019 and 2020 and blamed the Swissy’s appreciation for the downgrades.

“The new conditional [inflation] forecast lies below the June forecast as a result of the appreciation in the Swiss franc.”

SNB Overlord Jordan went even further since he pinned the SNB’s inaction on the Swissy’s recent appreciation when he said the following during an interview:

“The franc has appreciated, which has also led to a tightening of monetary conditions.”

“That is also the main reason why our monetary policy must remain expansive.”

Getting back on topic, the Swissy also decoupled from the euro on Friday since the euro was feeling some bearish pressure but the Swissy was surging higher across the board.

And as pointed out in Friday’s London session recap, risk-taking was actually the name of the game in Europe. However, Brexit-related fears flared up because of a media blitz against Theresa May and that may have sent safe-haven flows towards 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
CHF/JPY (red) vs.  EUR/JPY (black): 1-Hour Forex Chart
CHF/JPY (red) vs.  EUR/JPY (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