RISE OF POPULISM IN EUROPE DAMPENS EURO RALLY

The Euro fell today following the outcome of the Italian election and weakening retail sales in the region. Yesterday, Italian voters went to an election whose outcome showed a rise in populism. The anti-establishment Five Star Movement got 31% of the vote while the center-right coalition made of several parties backed by Silvio Berlusconi got 37% of the vote. The country now faces weeks or months of intense negotiations to form a government.

The European retail sales data showed that January’s retail sales were down -0.1% which was lower than the 0.3% traders were expecting.

In the United Kingdom, data from the Office of National Statistics showed that the services PMI of 54.5 beat the consensus target of 53.3. This shows an increase in the output of the services sector which lastly reported figures of 53. As a result, the pound was higher by about 0.24% against the dollar and 0.50% against the Chinese Yuan. In addition to this, Theresa May found some support from her party on the ongoing Brexit negotiations.

The Canadian dollar fell following an early morning tweet by President Trump. In the tweet, Trump threatened to pull the country out of NAFTA. This follows last week’s statement about imposing tariffs on steel and aluminium. Since then, the debate among policymakers and traders was about whether Trump would include top allies like Canada, EU, and Japan. This tweet tied the tariffs issue with the ongoing NAFTA negotiations.

EUR/USD

The EUR/USD pair is currently trading at the 1.2300 level. At this level, the pair is trading above the 200-MA level and below the 50-day MA. In the coming days, the pair will be very volatile as ECB meets to decide on the monetary policy and as traders wait for the employment numbers from the United States on Friday. The likely scenario is where the pair reaches the resistance level of 1.2354 or where it falls to the support level of 1.2221.

GBP/USD

The cable was slightly higher than other currencies following a positive read on service PMI numbers. It is now trading at the 1.3786 level. Like other currency pairs, the cable will be significantly volatile this week as the UK reports its service inflation numbers and as traders wait for the employment numbers from the United States. At this stage, it is difficult to predict the near-term movements for the pair but there is a likelihood that it will test the 1.4000 level.

USD/CAD

The Canadian dollar fell against the USD after Trump sent a tweet about tariffs and NAFTA. The pair is now trading at 1.2936 level, continuing the gaining streak we saw last week. This week, the Bank of Canada will meet to decide on the monetary policy of the country. While the rally could continue, traders should pay close attention to 1.2900 which is an important support for the pair.