The EURUSD pair staged a marginal recovery on Monday but failed to close above the 1.17 threshold, and the trading looks neutral today. The recent rebound was mainly due to a local dollar weakness as well as the squeeze of euro shorts opened during the Italian political crisis.
The market continues to cheer the formation of a new government in the country. However, the political issues in Italy may yet put some pressure on the single currency down the road as the future relationships of the populist government with the EU look uncertain. Moreover, the dollar could regain strength amid the increasing rate hike expectations. Despite the recent US jobs report failed to fuel a rally in the USD, the figures themselves confirm that the economy is rather healthy to withstand a more aggressive tightening by the Fed.
Against this backdrop, euro still looks vulnerable to further losses even as the currency shows some recovery signs lately. EURUSD needs a decisive break above 1.17 in order to challenge the 20-DMA in the 1.1750 area. As long as the pair remains below this moving average, the downside risks prevail in the short-term charts.
By Helen Rush
Senior Analyst at Capital Markets