Market Analysis

EURUSD experiences increased volatility amid Brexit drama

Trading has been especially choppy in the past few days amid a multiplicity of headlines on topics ranging from China trade to uncertainty around UK’s divorce from the European Union following Italy’s budget drama.

After British Prime Minister, Theresa May struggled to reach an exit deal this week investors contemplated the possibility of a disorderly “no-deal” departure or another referendum. However, the result of the no-confidence vote came out yesterday with 61% in favour of the Prime Minister (PM) May. The 200 Members of Parliament (MPs) voted in support of the Prime Minister (PM) May, out of 317. The PM could have kept her job but is not close to achieving Brexit promises, neither of approving the Brexit deal through the Parliament.

The currency pair rallied yesterday, almost erasing the previous day dive, driven by Italian Prime Minister Conte that proposed a 2.04% deficit target for 2019 to the European Commission. He said the new target was possible because budget measures were less costly than the first elaborations.

Meanwhile, Italian Deputy Prime Minister Luigi Di Maio said on Tuesday that “there will be a French problem” on top of an Italian one if France’s deficit breaches European Union (EU) rules after Emmanuel Macron unveiled measures to suppress protests. Now the Italian budget drama may turn into a French budget drama despite the probable increase of the French deficit to more than 3%.

Since the beginning of 2018 until last Wednesday close, the EURUSD remains negative with a loss of over 5.0% and since the start of December remains slightly above water with a minor gain of 0.17%. Nonetheless, the currency pair on the weekly stance has a minor loss of 0.23% and on the daily time-frame, the closed in the green with 0.46% gain. Furthermore, the EURUSD remains in a bearish phase since early October.

On yesterday session, the currency pair initially rose with a narrow range and closed near the high of the day, however, managed to close within Tuesday range, which suggests being slightly on the bullish side of neutral.

The stochastic is showing a strong bearish momentum and crossed below the 50 midline.

The currency pair rallied after testing yesterday the 61.8 Fibonacci expansion at 1.1308. The pair remains within a trading range, unable to break under 1.1300 and holding on top of 1.1400. On a two-month picture, the EUR/USD seems to be developing a symmetrical triangle that seems is about to break. A symmetrical triangle chart pattern represents a period of consolidation before the price is forced to breakout or breakdown. As it develops, trading activity diminishes along the way until the apex of the triangle is reached. On price breakout the projected target is 1.1704, however, on a price breakdown, the projected target is 1.1030.


EUR/USD Daily Candlestick Chart

EUR/USD Daily Candlestick Chart


Watch out this Week: 

Thursday, December 13 at 12:45 GMT (07:45 ET): The European Central Bank (ECB) is scheduled to announce the interest rate decision for the Eurozone, which is widely expected by market analyst to remain at 0%. Usually, if the ECB is hawkish about the inflationary outlook of the economy and raises the interest rates it is positive for the EUR. Likewise, if the ECB has a dovish view on the European economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative.

Thursday, December 13 at 13:30 GMT (08:30 ET): The ECB President Mario Draghi is scheduled to give a press conference regarding monetary policy. His comments may influence the volatility of EUR and determine a short-term positive or negative trend. His hawkish view is considered positive, for the EUR, whereas his dovish view is considered negative.

Thursday, December 13 at 13:30 GMT (08:30 PM ET): The US Department of Labor is scheduled to release the initial jobless claims in the week ending December 7, which is expected to drop to 230K comparing to 231 registered on November 30. A larger than expected number indicates weakness in this market that influences the strength and direction of the US economy. Normally, a decreasing number should be taken as positive for the USD.

Friday, December 14 at 13:30 GMT (08:30 PM ET): The US Census Bureau is scheduled to release the US retail sales month-on-month in November which is expected to drop to 0.2% comparing to 0.8% registered in October. A high reading is seen as positive for the USD, while a low reading is perceived as negative.


Written by Hugo O’Neill, External Analyst


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