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Early Friday the European Union came to an agreement on migration including setting up migrant centres within the EU and beefing up external borders. While this may appease Italy, who have recently taken a strong anti-migrant stance, the full acceptance of the agreement in Germany is more important, especially if Angela Merkel is to keep her coalition government intact.
The market’s reaction to the news saw the single currency bounce higherbut gains are likely to be short-lived as other factors come back into play. The fractious EU-US trade war continues and is likely to ramped-up as US President Donald Trump continues with his ‘America First’ program, while interest rates in the EU are staying low for longer. The ECB suggested that rates will not rise until Q3 2019 at the earliest. The latest market talk is that the EU deposit rate may be raised by 0.10% to -0.30%, a symbolic gesture more than an effective monetary policy lever.
EURUSD continues to bounce back from around 1.1500, which may be aided by option expiries, quarter-end rebalancing and potential central bank intervention to ease the euros recent fall. EURUSD may struggle to break above 1.17175, a combination of the November 7 swing-low and the 38.20% Fibonacci retracement of the January 2017 – February 2018 rally. To the downside, 1.15540 may hold ahead of 1.15000 and 50% Fibonacci retracement at 1.14480.
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