EUR / USD: Brexit, Italy, and US statistics

The EUR / USD traders yesterday could not fix the price in the region of the 14th figure. Brexit and Italy put pressure on the pair, therefore, despite the relatively weak position of the US currency, the pair is not able to demonstrate even a minimal correction. Moreover, a set of fundamental factors reduced the price of the pair to the base of the 13th figure, that is, to two-week lows.

First, German Chancellor Angela Merkel announced yesterday that Europe would not reconsider the Brexit deal. And although the position voiced was highly expected, the pound and the single currency fell significantly throughout the market. Obviously, traders hoped for a "miracle", but it did not happen. The Europeans are principled and do not make concessions to London. Merkel only promised to "make every effort" to convince Britain that the backstop will not be of an indefinite nature. Following the meeting with Theresa May, the head of the European Council, Donald Tusk, just threw up his hands. He noted that the EU countries want to help the British prime minister to get approval from the national parliament, but no one in Brussels knows how to do it. A similar opinion was voiced by the European Commission President Jean-Claude Juncker, who expressed his displeasure that Brexit would again be the subject of discussion at the EU summit, which will start tomorrow, December 13th.

In other words, the probability of a "hard" Brexit is still great, although much depends on the outcome of the above summit. If the EU members meet London and in any way fix the final date of the backstop, the situation will change dramatically, but so far there are, alas, no prerequisites for this.

However, besides Brexit, the single currency has other problems. In particular, the uncertain prospects of the Italian question. For several weeks, information has been circulating on the market that the Italian government is preparing a compromise decision on the budget, in order to avoid a disciplinary procedure on the part of the European Commission. But initial optimism was replaced by cautious expectation, and finally, disappointment.

Negotiations clearly stalled, and not only because of the unwillingness of Rome to significantly reduce the budget deficit, but also because of the contradictions within the coalition government. According to rumors, the representatives of the League of the North and the 5 Star Movement have a different understanding of the negotiations with Brussels, therefore they cannot work out a common position on this issue. Initially, the Italians were ready to reduce the budget deficit to 2.2%, then they allegedly made more significant concessions (1.8%), but this issue was not officially resolved.

Just yesterday, Italian Finance Minister Giovanni Tria, said that his country did not significantly change the parameters of the budget. In addition, rumors appeared in the Italian press about possible early elections, which could take place as early as next March. Given the popularity of Eurosceptics in Italy, in the wake of the next elections, populists and right-wing radicals can only strengthen their positions in parliament, denoting the appropriate vector of foreign policy, primarily in relations with Brussels. By the way, members of the coalition can use the conflict with the EU leadership in their election campaign. In this case, they now have no motivation to compromise and cut down on the planned social programs.

In other words, the problem of the Italian budget is still on the agenda. Today it is known that the government coalition refuses to reduce the budget deficit to a level below 2.1% and this means that the conflict has not been exhausted and will have a corresponding continuation.

Yesterday American statistics also had a certain pressure on the euro-dollar pair, which turned out to be better than expected. Thus, the producer price index fell to 0.1% on a monthly basis, while experts expected a decline to zero. On an annualized basis, the indicator also slowed down (to 2.5%), fully justifying the forecasts of analysts. In my opinion, this release is a dubious reason for optimism. The indicators have slowed down significantly, although not to the expected levels. If today's data on inflation will come out in the "red zone" (with a rather weak forecast), then yesterday's optimism will be completely leveled, and the dollar index will again fall to the area of 96 points.

Also, do not forget that the dollar is under the background pressure of de-escalation of the US-China trade war. According to preliminary information, Beijing is ready to reduce import duties on American cars. In the coming days, the government will consider a proposal to reduce duties to 15% (from the current 40%). If the authorities approve this proposal, then China will take a serious step towards a broad trade deal, thereby implementing the trump and Xi Jinping Argentinean agreements.

Thus, at the moment, both the euro and the dollar are under certain pressure, however, the single currency feels a stronger pressure of fundamental factors. But if today's release on the growth of American inflation will disappoint traders, then the balance will lean in favor of the euro. Such an ambiguous picture suggests that it is expedient to make trading decisions regarding the EUR / USD pair already during the American session.