The Euro rallies to 1.17 as hopes for an interim government in Italy squeeze the shared currency to the upside but are Euro’s troubles over? Analysts at ADS Securities shared their today’s 31 May Euro Trading Outlook.
31 May, ADS Securities – The Italian situation is far too complicated for anyone to hold a positive view right now: both scenarios, either an interim government that will lead Italy to new elections or a populist coalition administration, reek of uncertainty dampening any hopes for a sustained recovery for the Euro.
What is certain however is that a populist government in Italy – either right now or in a couple of months’ time – would establish a long-lasting risk for the Eurozone given their fiscal policy plans.
31 May Euro Trading Outlook
Today the Euro will remain front and center in light of the Eurozone inflation report. Analysts are expecting a positive reading which might create expectations for a continuation of yesterday’s gains. Albeit, it is more likely that the expected bullish report was the major catalyst behind Euro’s short-term surge yesterday and hence it has already been priced in. Should this be the case, then the Euro will need fresh positive news to continue moving higher and this has been in short supply recently.
At the same time, President Trump’s decision to impose tariffs on steel and aluminum imports from the Euro area is another major risk to the shared currency. Trump had decided to delay the execution of his plan until June 1st but with the date just around the corner all bets are now off.
If the US President decides to offer more time for negotiations then the Euro will get the catalyst it needs to push higher – even though we wouldn’t expect this push to last for long. On the other hand, if Trump goes ahead with imposing tariffs then the Euro will collapse again and a break below 1.16 will expose the 1.15 lows.
US PCE inflation in focus
Later in the day, the US PCE inflation reading will attract investors’ attention. The PCE report is Fed’s favorite inflation metric and it has its value in gauging how price pressures in the US are faring.
Having said that though, it is more likely that investors will focus on news around the US trade spat with China; the G7 Finance Ministers are meeting in Canada and the spotlight will fall on trade-related comments. A positive tone would do wonders in helping the Dollar push higher versus the Yen and will force Gold lower again but there’s significant risk for disappointment so caution is advised.
Equities are beginning the day on a positive footing with the Asian markets strongly above water and the European futures trending to the upside. Investors are hoping for positive news from the G7 meeting in Canada that will calm their nerves but as mentioned above, the risk of disappointment is significant.
Japan’s Fin Min is having bilateral talks with US Treasury Secretary trying to achieve an exemption from US tariffs which would send a positive signal to the markets. However, if talks lead nowhere and President Trump slaps Europe, Canada and Mexico with fresh tariffs then risk appetite will take a hit and market indices will turn lower.
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This article was provided by analysts of ADS Securities.
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