EUR/USD fundamental and technical outlook
The Euro has rallied against the USD in the last 4 weeks as a result of ‘no taper’ on the US side and improving albeit tepid and uneven European economic growth and PMIs.
Most notably in the past week, the resolution to Italy’s parliamentary standoff, which saw Primer Minister Letta winning a vote of confidence after former Prime Minster Berlusconi threatened to dissolve parliament by announcing his resignation, has increased investors’ confidence that Italy, the Eurozone’s 3rd largest economy and laden with the region’s largest debt burden can push through fiscal reforms to lighten debt to GDP ratios. The ECB president, Mr Draghi has also commented that the ECB would use ‘all available instruments’ has sparked confidence and stability for the zone and therefore, the single block currency.
The perception that the Eurozone’s assets remain ‘cheap’ has also prompted a move of capital into the region, explaining the rise of the euro.
The Euro therefore may have considerable room to run to the upside given its improving fundamental outlook. However, tensions in the US political arena continue to gain traction as the budget standoff enters it’s second week and the October 17 debt ceiling approaches. This is risk negative and may prompt capital flows into the USD safe haven. In addition, the USD is at critical support levels at 10,460 and should see a bounce either outcomes of the US fiscal standoff. This is EUR/USD negative.
It is also notable that the previous September 30 COT report (the most latest is delayed thanks to the US Gov shutdown) has indicated that