A busy sessions for the Euro overnight in terms of risk sentiment, central bank speak and political developments. European equity markets rallied over 1% on the day on Monday, largely driven by a 3% rise in the Italian index following conciliatory comments from the Italian government regarding their 2019 budget targets. The government has been warring with the European commission over their deficit targets for the 2019 budget with the commission describing current targets as a breach of its rules. The news that the Italian government was willing to adjust these targets was welcomed by markets, forcing Italian bond yields sharply lower with the 10-year falling almost 15 basis points on the news. Currency moves were more constrained as the EUR/USD pair round-tripped from 1.1330 to 1.1380 before giving back most of these gains. It is currently oscillating around the 1.1340 handle heading into Tuesday’s Sydney session which is shaping up as a light one for European markets.
Recapping yesterday’s events, we heard European Central bank President Draghi’s optimistic commentary on Eurozone growth and inflation levels whilst also receiving Germany’s business climate survey. Draghi pointed to the slowdown in recent data as being more pronounced than expected and also noted that uncertainties such as protectionism also remain elevated. Despite this, he maintained that the economy was still ticking along in line with the central bank’s projections which are aiming for bond purchases to end in December. The German IFO business survey was weaker than expected, largely in line with a string of disappointing macroeconomic data out of the eurozone. The business climate reading fell from 102.9 to 102.0 in November, slightly missing market expectations of 102.3.
Today’s session is virtually empty for the Euro as we only have second tier US data in the form of consumer confidence and house prices. As discussed yesterday, the key risk events for the week are delivered on Friday through October core CPI and the October unemployment rate. Both reads are historically market movers, we expect any deviations from expectations to inject some volatility into the Euro.
Technical levels to consider moving into today are 1.1300 before the august and October lows of 1.1216. On the topside, areas of resistance are seen firstly at the November high of 1.1500 with the 1.1529 level also seen as a point of key technical resistance.