The electoral earthquake in Italy’s election last weekend resulted in a hung parliament as no single party held the majority after election results came out early this week.
The 5-Star Movement fought the more-established Democratic Party (PD) headed by Pier Luigi Bersani and the People of Freedom (PDL) party led by Silvio Berlusconi, and yet 5-Star surfaced as Italy's largest party. Due to this result, 5-Star party leader Beppe Grillo fleshed out his party’s conditions to support a new government, namely changing the electoral law, cutting politicians' expenses, and finally setting a two-term limit for Italy’s parliamentarians. Grillo went on to say that Italy is "overwhelmed, not by the euro, but by debt and expects another election in the next six months where he is confident that his party would emerge as a majority winner.
In other news, US CB Consumer Confidence, Pending Home Sales, New Home Sales, and Germany’s Retail Sales posted strong readings, while New Zealand Trade Balance, Italy and Euro-area Unemployment data disappointed with worse-than-expected figures. China’s Manufacturing PMI data grew less than expected and came in just a hair above the 50 borderline.
Gold buyers did not make any progress this week as price is back down in the $1,500s after failing to conquer the $1,600 level. Buyers failed to follow through after price rose to $1,619 on Tuesday, and so the bears took over until Friday. This is a worrying sign for bulls; however, they can negate this by pressing price higher next week. Near-term target is $1,700.
Oil fared much worse than Gold this week, with the former’s price making a nearly $2 drop on Friday which almost breached the $90 level. The problem area for bulls came in at $94, and the rejection off this area on Monday was nasty and spelled the trend for the entire week. Bears have potentially unlock the potential for a journey to $83-$85.
EURUSD witnessed a key down-week this week as sellers put the final nail in the coffin after 1.3300 held during the start of the week. Bears made a big downward push on Monday and price was unable to make a significant recovery since then. The pair stayed close to all-important 1.3000 level mid-week and it finally gave way on Friday, with price reaching as low as 1.2966 before the week ended. Bulls need to neutralize the momentum by taking price back above 1.3200 this coming week.
Not much happened in USDJPY this week as price remain engulfed between the 90 and 94 areas. The pair was stuck near the 92s during the first four days, but price managed to climb higher and ended the week in mid-93s. Wait-and-see mode if 94 gives way this time.
As predicted in the previous article, price did pursue the 1.5000 level and manage to breach it during Friday’s trading. The pair fell 235 pips to reach 1.4985 before settling back in the 1.5000s to close the week. It would be a surprise if bulls would be able to get price back up to 1.5300 in the new trading week, but in reality that is their critical task right now.
The Week Ahead
Monday’s news highlights come early with Australia’s Building Approvals, Company Operating Profits, ANZ Job Advertisements; Spain’s Unemployment Change; UK’s Construction PMI; Euro-area PPI; Eurogroup Meetings; and speeches by US FOMC’s Yellen and Powell.
On Tuesday, there are Australia’s Current account, Retail Sales, Interest rate announcement and RBA statement; UK BRC Retail Sales Monitor, Halifax HPI; Services PMI from Spain, Italy, UK, and Euro-area; ECOFIN Meetings; and US ISM Non-Manufacturing PMI.
Wednesday is relatively concise this week but nonetheless teeming with key news like Australia’s GDP; Bank of England Governor King’s speech; US ADP Non-Farm Employment Change, Beige Book, and Factory Orders; Bank of Canada Rate and Rate Statement, Ivey PMI.
On Thursday, there is a lot of news to digest, namely Australia’s Trade Balance; Japan’s Interest rate announcement and statement, BOJ Press Conference; SNB Chairman Jordan’s speech; BOE Rate Announcement and Statement; ECB Rate Announcement and Press Conference; Canada and US Trade Balance; and US Unemployment Claims.
Finally on Friday, there are Japan’s Final GDP and Current Account; China’s Trade Balance; Germany’s Industrial Production; Canada’s Employment data, Labor Productivity; and US Employment data.