The EUR/USD is finally out of the range, and with a bang. The world’s most popular currency pair broke below the double bottom at 1.1300 and reached a low of 1.1240 quite quickly. Cascading stop-loss points may have exacerbated the downfall.
There are three reasons behind the fall:
1) Brexit impasse
Negotiations between Brussels and London have not yielded a solution to the question of the Irish border. Moreover, talks within the British government are in a state of chaos. Supporters of a hard Brexit reject any compromise that PM Theresa May could offer. Pro-Remain politicians such as Justine Greenberg are also having their say, especially after Friday’s resignation of Jo Johnson. Johnson was a junior, pro-Remain minister and the brother of former Foreign Secretary Boris Johnson.
All in all, there are growing concerns that no deal can pass a vote in parliament, regardless of the European Union’s position.
2) Italy deadline
The third-largest economy in the euro-zone is due to respond to the European Commission by Tuesday. The EC rejected Italy’s budget with its 2.4% deficit and rosy growth forecasts. The Italian government is convening to decide on the matter.
The ongoing clash is weighing on Italian bonds. Spreads between these securities and the benchmark German bunds is widening and hurting the common currency.
3) USD strength, Fed-related
The US Dollar took a hit on the US Mid-Term elections but then recovered. The Fed left rates unchanged but maintained its hawkish bias, with high expectations for a rate hike in December, the fourth this year.
The US Dollar is gaining ground across the board. US traders are off due to Veterans’ Day.
EUR/USD Technical Analysis
