EUR lower as Rome seeks EU confrontation EUR lower as Rome seeks EU confrontation EUR lower as Rome seeks EU confrontation

EUR lower as Rome seeks EU confrontation

Forex 4 minutes to read
John Hardy

Head of FX Strategy

Summary:  The Italian government is at its most popular since forming as it keeps an aggressive line in confronting the EU and bond market constraints on the budget. Italian yields have jumped again and the euro is under pressure.

Italian yields gapped back higher this morning, with the two-year BTP well above 100 basis points again, driving fresh euro weakness with EURUSD ready to challenge the range low from a month ago near 1.1530 and the obvious big round 1.1500 level a bit lower. The populist Italian government is registering its highest approval ratings since its formation earlier this year and its aggressive stance on the budget is a chief driver, so Lega’s Salvini in particular feels that he has nothing to lose in continuing to drive a hard line on fiscal deficit expansion. The EU and bond market response will prove critical as the populists won’t back down.

Weak JPY

The yen is sharply weaker almost across the board as US yields have picked up again, and perhaps on a tepid quarterly Tankan survey and weak data out of China overnight. As well, hedging currency exposure to Japanese stocks may be a self-reinforcing driver as the Nikkei has blasted to new multi-decade highs over the last few sessions.

Firm GBP 

While GBPUSD traders are eyeing the 1.3000 pivot area on USD strength, sterling is relatively firm against the euro despite the showdown in the Tory party during their party conference over the weekend. Boris Johnson continues to rail against anything resembling a Chequers deal, which PM May has apparently not abandoned. May is set to speak on Wednesday, but the odds of the Tory party delivering a Brexit are falling fast. Labour and some Tories won’t vote for a no deal and a Chequers-like deal would face even broader opposition. It is difficult to know the path from here, but some sort of extension of the Article 50 period together with a possible second referendum (highly risky) or even elections seems inevitable. 

Strong CAD

The loonie ripped higher late Friday and to open the week as Canada signed on to the trade deal between the US and Mexico to replace NAFTA. USDCAD finds itself suddenly below the 200-day moving average and the move in that cross looks a bit exaggerated given the USD strength elsewhere, but this does help clear the way for the bank of Canada to play a bit of catchup with the Fed.

Chart: EURCAD weekly

Combining themes, the weak euro and the sharply stronger CAD have seen a blowout move in CAD crosses like EURCAD – the chart here has a bit of a head-and-shoulders look to it if the 1.50-1.4800 zone finally falls.

Source: Saxo Bank

The G-10 rundown

USD – the USD enjoying strength on the euro’s and yen’s woes for now, but not convinced that USD strength is the focus at the moment, given the lack of a more forceful move in US rates.

EUR – the euro lower on fresh existential concerns. The single currency will remain headline prone and we have Italian finance minister Tria in Luxembourg today. If the EU makes nice, the euro could turn around quickly, but will they want to show that they can be pushed around? 

JPY – USDJPY bulling up into the last shreds of the range back eighteen months or more ahead of 115.00, even without long US yields setting new highs for the cycle. The trend looks strong if the risk appetite mood stays relatively positive here.

GBP – sterling is bid against the euro. Watch out for stop-loss driven selling in sterling, however, if the USD strength drives GBPUSD through the pivotal 1.3000 level. As we discuss above, the UK political situation looks untenable for delivering a Brexit, so some sort of delay to the whole process, and a new narrative, looks increasingly likely.

CHF – extreme gyrations in EURCHF as Friday’s meltdown on fresh Italy woes reversed sharply ahead of the weekend. We were reminded over the weekend of the ongoing, awkward relationship between Switzerland and the EU, where a new deal is needed to replace the patchwork of deals that have accumulated over the years. Given Brexit, the EU is presenting a stern face here as well. 

AUD – low expectations for the RBA tonight as Australian short rates have hit the skids over the last week. AUDUSD looks ready for new lows for the cycle if the 0.7200 area falls.

CAD – CAD pulling sharply stronger – look at EURCAD and even CADCHF and CADJPY – and more fuel in the tank there even as USDCAD's progress lower may prove a bit slow if the greenback firms further.

NZD - watching the kiwi’s relative strength versus the Aussie over the RBA tonight – in the bigger picture, we see more upside and than downside risk in AUDNZD.

SEK – tricky for SEK if the mood in Europe gets too negative as, but the medium-term picture suggests we have a well-defined top in place for EURSEK, encouraging a sell-the-rallies stance.

NOK – new highs in Brent – can the 9.40 area in EURNOK survive for long if crude continues higher – we focus lower toward 9.25.

Upcoming Economic Calendar Highlights (all times GMT)

• 0830 – UK Aug. Mortgage Approvals
• 0900 – Eurozone Aug. Unemployment Rate
• 1300 – US Fed’s Bostic (Voter) to speak
• 1330 – Canada Sep. Manufacturing PMI
• 1400 – US Sep. ISM Manufacturing
• 1615 – US Fed’s Rosengren (Non-voter) to speak


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (
- Full disclaimer (

Saxo Markets
40 Bank Street, 26th floor
E14 5DA
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo Markets is a registered Trading Name of Saxo Capital Markets UK Ltd (‘SCML’). SCML is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992