Fundamental Forecast for EUR/USD: Neutral
- The Euro[1] had another tough week, losing ground against all but two major currencies. However, the Euro trade-weighted index was up for the first time in five weeks as the gains came against the Japanese Yen[2] and US Dollar[3].
- Upcoming economic data will do little to change the conversation around the Euro; instead, external influences are likely to reign supreme.
- The IG Client Sentiment Index[4] suggests a mixed outlook for EUR/USD[5] after a sharp drop in retail trader net-long positioning over the past week.
See our long-term forecasts for the Euro and other major currencies with the DailyFX Trading Guides[6].
The Euro dropped against five of the seven other major currencies last week, although a late-week rally across the Euro complex staved off what could have been a much worse performance. Driven by fears of what a messy political transition in Italy could result in, the Euro trade-weighted index dropped to its lowest level since last July before posting its first positive week since April 20.
But now that a populist, anti-establishment government has been sworn into power, investors will anxiously await to see what spending plans are unveiled. Ultimately, if steep deficit spending measures like a basic income are enacted by the new Italian government, the rating agencies could chime in and cut Italy’s already weak credit rating, which is only a few notches above ‘junk.’ If Greece, which accounts for 3% of Eurozone public debt, can cause the headaches that it has over the past decade, then Italy, which accounts for 23% of Eurozone public debt, could
