EUR/USD is trading steadily around 1.1400 on Thanksgiving Day, entrenched in a narrow range. Where will it go to? There are five reasons that support the upside.
1) Signs of a compromise around Italy
The European Commission rejected Italy’s budget on Wednesday and recommended opening a disciplinary procedure. However, this was broadly expected and priced in by markets. Italian Deputy PM Luigi Di Maio expressed some willingness to compromise. His fellow Deputy PM and coalition partner Matteo Salvini are not that keen, but the optimism already sends the spread between Italian 10-year bonds and the benchmark German ones lower.
2) Weak US data
Just before Thanksgiving Day, the US released a bulk of economic figures and they mostly missed expectations. Durable Goods Orders fell on both the headline and the core numbers and also suffered downward revisions. The University of Michigan’s Consumer Sentiment measure was downgraded in the final read for November. Existing Home Sales moved up in October, but the improvement came after Hurricane Florence sent sales lower in September. All in all, the US economy is not shining.
3) Fed to pause?
MNI reported on Wednesday that the Fed may pause its tightening cycle in the spring. The report follows a few dovish comments by Fed officials on Friday. There is no confirmation, but it does not seem that surprising given the recent economic weakness.
4) Progress on Brexit
After attempts to oust UK PM Theresa May failed, she flew to Brussels to hammer out the last details of the Brexit deal ahead of the EU Summit on the weekend. Her meeting with EC President Jean-Claude Juncker was successful, and progress was reported. May also spoke with Spain’s PM Pedro Sánchez, and they reportedly advanced towards an agreement on the post-Brexit arrangements for Gibraltar.
