Euro's decent rally yesterday faces stiff headwinds

After an impressive rally yesterday, the euro will struggle to push significantly higher from here in the coming days. Support from expected from euro-area inflation readings today was pre-empted by yesterday's strong CPI data from Germany and Spain. Moreover, headwinds remain from Italy's political uncertainty and trade war anxieties with the specter of immediate U.S. steel tariffs. If the latter is averted (and that's a big if), the shared currency may pop, but it will be hard to gain material upside in the near-term given the challenges Italy poses.

In addition to the CPI data, the euro mostly benefited from the news yesterday that the League and Five Star were drifting apart, averting the possible worst-case scenario of them campaigning together in new elections. Still, the possibility of a populist coalition government remains on the table with reports showing the euro-skeptic Paolo Savona in the cabinet. This all means the story has room to run, and even with better data and a not-too-worried ECB, euro-area (and global trade) politics will make a sustained euro rally tough.

Source: Bloomberg Pro Terminal

Read more:

• NZD/JPY – Short with the main movement after a price action signal
• Jeffrey Gundlach: “USD’s next move is going to be down”
• Here’s a cable forecast for $1.40 till end of 2020
• NZD to 0.59 at end of Q1 2020
• Support for risky currencies as trade war hopes grow