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Euro traders still seemed jittery over Italy’s budget situation and the upcoming EU Summit should provide some clarity on this matter. Here’s what to expect.

EU Economic Summit (starting Oct. 18)

The who’s who of the EU are scheduled to have a pow-wow in Brussels around the end of this trading week to discuss key economic issues, most notably Brexit.

So far it’s not looking too good for either party as talks have reportedly stalled over the weekend as the Irish border backstop remains a sticking point. Although this setback has been more bearish on the pound than the euro, the shared currency has also lost some of its appeal to its other counterparts due to the uncertainty.

Many expect this deal-or-no-deal situation to be squared away in this upcoming summit, and a “no deal” outcome would also have significant repercussions on the EU sans U.K.

More from Italy

Italy’s budget issues could also be discussed during the EU Summit as those in Brussels insist on sticking to deficit targets while coalition leaders in Italy push for their spending plans.

Of course any strong declarations from political party heads or EU officials on this matter throughout the week could keep highlighting tensions and weighing on European markets, along with the euro, so stay tuned!

Last Week’s Price Review

The Euro

The euro is headed for its third week of net losses since the euro is presently mixed but a net loser (as of 1 pm GMT), which is a repeat of last week’s performance.

I suppose one way to summarize the euro’s price action is that it got whupped at the start of the week because of concerns surrounding Italy’s budget, but easing Brexit-related concerns helped to limit the euro’s losses.

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

The euro started the week on a weak footing and as noted in Monday’s London session recap, market analysts were blaming the euro’s slide on Italy-related concerns due to news over the weekend that Italy received a letter from the European Commission, which warned that (emphasis mine):

“Italy’s revised budgetary targets appear prima facie to point to a significant deviation from the fiscal path recommended by the Council. This is therefore a source of serious concern.”

Italy’s Salvini was also speaking during the session and in one of his speeches, he lashed out against European Commission President Jean-Claude Juncker and Economic Affairs Commissioner Pierre Moscovici, saying that:

“We are against the enemies of Europe, who are Juncker and Moscovici, closed in the bunker of Brussels.”

Anyhow, the euro weakened for a while before trading sideways for a bit.

Fresh sellers would emerge later during Tuesday’s London session, thanks to a report from Il Sole 24 Ore, which claimed that the European Commission is set to reject Italy’s draft budget for violating the E.U.’s budget rules, as well as Italian Finance Minister Giovanni Tria’s defense of Italy’s budget plan and growth targets, despite criticism from E.U. officials.

The euro moved lower for a few hours after that before becoming more mixed when Tuesday’s U.S. session rolled around and then traded mostly sideways during Wednesday’s Asian session.

Interestingly enough, most EUR pairs found buyers at around 9 am GMT during Wednesday’s London session. I noted in Wednesday’s London session recap that there were no positive catalysts (and there were even negative catalysts), so the euro’s rise was rather weird.

Market analysts began saying later that the euro got a lift because of growing hopes for a Brexit deal, though, which makes sense since BBC Political Editor Laura Kuenssberg was tweeting some relatively positive Brexit-related stuff at the time, with special focus on this one in particular:

However, the euro’s price action became a chaotic mess during Wednesday’s U.S. session. And the euro’s price action was also a mess on Thursday. There were even instances of diverging price action on EUR pairs, which implies that the euro became vulnerable to opposing currency price action.

The euro’s price action finally became somewhat uniform again come Friday since the euro was encountering selling pressure on most pairs.

And as noted in Friday’s London session recap, the euro started sliding at around 5 am GMT before the London session rolled around, but there was no apparent catalyst for that. However, sellers clearly began attacking the euro after Draghi’s speech since Draghi changed his characterization for his inflation outlook from “vigorous” to “gradual”.

The euro was able to score wins against the Swissy, the Greenback, and the Loonie, though. Even so, the majority of EUR pairs were not able to recover from Italy-related concerns at the start of the week, so the euro is currently mixed but a net loser.

The Swiss Franc

The Swissy is currently in third-to-last place (as of 1 pm GMT), which is also a repeat of last week’s performance and also means that Swissy will soon be marking its fifth consecutive week of net losses.

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

Looking at the overlay above, it doesn’t look like the EUR and CHF pairs had similar price action. But as you can see in the sample pairs below, EUR and CHF pairs do still have similar price action … for the most part.

As you can also see below, the Swissy initially had the upper hand, likely because the euro was bogged down by Italy-related concerns while the Swissy was enjoying the risk-off vibes.

The Swissy would later lose the lead during Thursday’s U.S. session, which is rather weird since risk aversion was the dominant sentiment back then. Maybe the SNB was intervening in the forex market again?

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