EUR/USD May Rise, But It Looks Limited

  • EUR/USD is trading above 1.1300, edging up from the lows.
  • Progress with Italy and tension ahead of the Fed are behind the limited move.
  • The technical picture is not that promising.

EUR/USD is extending its gains from late on Friday, but not going anywhere fast. The Italian coalition leaders Matteo Salvini and Luigi di Maio reached an agreement on a new budget with PM Giuseppe Conte.

The third-largest economy in the euro-zone will submit the new proposal to the European Commission, which has rejected previous budgets. A lower deficit may help convince Brussels, but further negotiations are more likely.

The common currency is still licking its wounds from the dovish comments by Mario Draghi. The President of the European Central Bank said that the “balance of risks is moving to the downside” in his post rate decision press conference on Thursday. This came as the Bank ended its bond-buying scheme.

The focus now shifts across the pond to the Federal Reserve’s all-important rate decision on Wednesday. The Fed is expected to raise rates in its last meeting of the year. However, there is growing uncertainty about the plans for 2019 — the most recent dot-plot from September points to three increases. However, some signs of a slowdown and a few dovish comments cause markets to rethink.

Nevertheless, the most recent top-tier economic figure beat expectations. US Retail Sales, published on Friday, showed that Americans were on a shopping spree in November, the month that includes Black Friday.

Speculation about the Fed is set to continue until the all-important event on Wednesday.

The economic calendar is light today, leaving room for Brexit speculation to have its say. The EU and the UK have not reached a new agreement on the Irish backstop that would satisfy Brexit hardliners in Parliament. The chances of a second referendum are rising, but PM Theresa May rejects these calls. Significant Brexit-related moves in the Pound tend to spill over to the Euro.

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