For the last two months the trend has changed to a downward one. Political instability and the associated risks for the Eurozone are returning to the EU. At the same time, economic growth in the EU has been slowing recently, which does not allow the ECB to tighten monetary policy and increase interest rates.
This week, the market was concerned about the situation in Italy and Spain. After the victory of the populist parties this year, the President of Italy tried to prevent the formation of a coalition, as a result of which the winning party, 5-Star Movement, was forced to refuse the formation of a government. Thus, the political crisis in Italy continues, although it could end soon. Most likely Italy can expect new early elections next year, and until that time the country will be ruled by an interim government. On the other hand, with his actions the President of Italy has probably achieved his goal, and the eurosceptics won't be able to rule the country for at least another year. However, investors fear that with the growing popularity of eurosceptics in Italy, the new election will turn into a referendum on the country's exit from the Eurozone.
The situation in Spain is also unstable, since a vote of no confidence may be declared soon regarding the current government due to a corruption scandal. So, there are also perspectives for early elections in Spain.
The probability of an increase of interest rates across the eurozone is reduced under the influence of these political factors. The situation this week has already forced the ECB to buy Italian governmental bonds to prevent a sharp decline in the value of the euro.
The Australian dollar, in turn, remains in search of incentives to strengthen. The situational strengthening of the currency thanks to the situation in the EU cannot continue permanently. At the moment there are a number of factors against the AUD. Data released today on the number of building permits in Australia showed a 5% reduction, while investors expected a decrease by only 2.9%. Demand for Australian raw materials in China is also declining. The RBA remains committed to a soft monetary policy and is unlikely to raise the rate at the next meeting on Tuesday.
Thus, there are perspectives for the strengthening of the euro, after the market has already reacted to the new political risks in the EU. However, so far the strengthening can be within the current downtrend. Strong economic stats from Germany, where the volume of retail sales in April significantly increased and the unemployment rate reached a historic low, stopped the decline of the euro against the AUD. In the near future we can expect the recovery of the euro to the level of 1.548-1.560 AUD. The MACD and Stochastic oscillators confirm the efficiency of the deals to buy in the near future.
