One, out of three weeks, Brussels gave to rewrite the Italy’s budget draft, has been already over

When nobody seemed to save the single European currency from its inevitable crash, the GBP gave EURUSD bulls a helping hand. The information that Theresa May struck a deal with the EU on financial services has drawn European currencies up against the U.S. dollar. The positive settlement of Brexit issues is good news not only for the UK, but the euro-area as well, as the disruption of economic ties can be seen as general negative.

It still can’t be said that the U.S. dollar started showing any sign of weakness. On the contrary, strong macroeconomic statistics and the US Treasury Department’s willingness to boost long-term bonds selling at the auction in the fourth quarter up to the new record of $83 billion should hypothetically support the dollar bulls. Employment in the private sector, reported by ADP, has added 227,000 of new jobs, which is the best result since February; and the US employment cost index is up to 0.8% QoQ in the third quarter, from 0.6% in the previous one. Such dynamics of indicators proves the US employment to be strong and increases the risk of the inflation rate growth. In this environment, the Fed just must continue normalizing its monetary policy.

Washington reported earlier that the volume of the US Treasuries issued will be boosted up to $1.34 trillion, which is the biggest since 2010. As a rule, an increase in the bonds issuance results in sales in the derivative market, in order to boost the yield and buy the securities for better prices at the auctions. A surge in Treasury yield is a bullish factor for the dollar.

Dynamics of long-term debt sales at the auctions

Source: Bloomberg.

Italy provides no information about meeting the requirements of the EU to rewrite the rejected budget draft. One week, out of the three-week term, given by Brussels, has been already over, but there hasn’t yet been any news from Rome. In the meanwhile, inside the Republic, there is a growing argument between the Italian finance minister Giovanni Tria, who insists that the debt-to-GDP ratio can be cut by means of higher economic expansion rate, and the Italian central bank’s governor Ignazio Visco, who emphasizes that the growth of Italian bond yield will cost the State €5 billion already in 2019. Italy faced zero economy growth and increase in unemployment rate up to 10% in the third quarter; it is 2 bps higher than in the euro-area in general. The longer uncertainty will last, the worse it will be for the PMI and the GDP rate, which encourages EURUSD bears

The major currency pair closely approached the lows of August; however the sellers’ attack has been repulsed close to the key support. A successful storm will open the way towards 1.118-1.121. Otherwise, if EURUSD bears fail to do it, the short-term consolidation in the range of 1.13-1.16 will grow more likely.


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Price chart of EURUSD in real time mode

Euro is Waiting for Word from Rome

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