EUR/USD: Italian Referendum Shakes Up Euro

It’s been a volatile start to the week for the euro. EUR/USD posted sharp losses on the weekend after a resounding “No” vote in Italy’s referendum. However, the pair has recovered and started the new trading week with strong gains. On the release front, German and Eurozone Services PMIs were within expectations. We’ll also get a look at the services sector in the US, with the release of ISM Non-manufacturing PMI. The index is expected to improve to 55.3 points.

It was a rough weekend for the euro, as Italians decisively rejected a referendum on constitutional change. The referendum turned into a vote on the popularity of Italian Prime Minister Matteo Renzi, and the “No” vote cruised to victory with 59.1%, a humiliating defeat for Renzi. The prime minister promptly resigned after the referendum result. President Sergio Mattarella will now face the task of forming a new government, and if he is unsuccessful, elections will be called.

This could open the door to the populist Five Star party gaining power. The party is anti-Eurozone and wants a referendum on whether Italy should stick with the euro. Thus, Renzi’s defeat has shaken up the Eurozone, which is still reeling from Britain’s recent decision to depart the club. The euro dropped sharply in Asian trade on Monday, but has recovered and posted strong gains in the European session.

US employment numbers were a mixed bag on Friday. Nonfarm Payrolls improved to 178 thousand, edging above the forecast of 177 thousand. This marked a 4-month high. However, Average Hourly Earnings, which measures wage growth, surprised with a decline of 0.1%, short of the estimate of 0.2%. This was the first decline in wage growth since March. The unemployment rate dropped to just 4.6%, well below the forecast of 4.9%. The strong labor market has been a key factor in the strong US economy, which saw GDP grow at a clip of 3.2% in the third quarter.

EUR/USD Fundamentals

Sunday (December 4)

All Day – Italian Constitution Amendment Vote. Actual – No

Monday (December 5)

  • 8:15 Spanish Services PMI. Estimate 55.1 Actual 55.1
  • 8:45 Italian Services PMI. Estimate 51.4 Actual 53.3
  • 8:50 French Final Services PMI. Estimate 52.6. Actual 51.6
  • 8:55 German Final Services PMI. Estimate 55.0. Actual 55.1
  • 9:00 Eurozone Final Services PMI. Estimate 54.1. Actual 53.8
  • 9:30 Eurozone Sentix Investor Confidence. Estimate 14.7. Actual 10.0
  • 10:00 Eurozone Retail Sales. Estimate 0.9%
  • All Day – Eurogroup Meetings
  • 13:30 US FOMC Member William Dudley Speech
  • 14:45 US Final Services PMI. Estimate 54.9
  • 15:00 US ISM Non-Manufacturing PMI. Estimate 55.3
  • 15:00 US Labor Market Conditions Index
  • 19:05 US FOMC Member James Bullard Speech

*All release times are GMT

* Key events are in bold

EUR/USD for Monday, December 5, 2016

EUR/USD Dec 4 – 6 Chart

EUR/USD December 5 at 10:30 GMT

Open: 1.0567 High: 1.0662 Low: 1.0535 Close: 1.0637

EUR/USD Technical

S1S2S1R1R2R31.04141.05061.06161.07081.08211.0957
  • EUR/USD posted sharp losses in the Asian session but has recovered in European trade
  • 1.0616 has switched to a support role following strong gains by EUR/USD. It is a weak line
  • 1.0708 is the next resistance line

Further levels in both directions:

  • Below: 1.0616, 1.0506, 1.0414 and 1.0287
  • Above: 1.0708, 1.0821 and 1.0957
  • Current range: 1.0616 to 1.0708

OANDA’s Open Positions Ratio

EUR/USD ratio remains unchanged. Currently, short positions have a majority (60%), indicative of trader bias towards EUR/USD reversing directions and moving lower.

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