Political impasse stifles EUR/USD

If currency pairs are a reflection of two different economies, recent moves in EUR/USD have ironically been rather subdued.

Midnight is the deadline for the US government to avert a shutdown as the debt ceiling looms large; a short-term budget needs to be decided by Congress if we are to avoid this. Meanwhile, over in Italy, Silvio Berlusconi is once again centre stage, calling for fresh elections.

In September eurozone CPI rose at its slowest pace since February 2012, rising by 1.1% down from last month’s 1.3%. This may spur the European Central Bank into a looser monetary stance, and would support Mario Draghi’s comments that long-term refinancing operations loans might be made available sooner rather than later.

The last fortnight has seen the euro fail to make any progress through 1.3570. The current range is a mere 100 points, with support coming from the 1.3460 level. The overhead resistance has been the key barrier to any test of the 1.37 highs seen earlier this year.

With the dollar already near eight-month lows against the euro, a break of this range could result in a measured move. A breach of 1.3450 (last week’s support) may well see the single currency fall back towards levels of 1.3330.

Spot FX EUR/USD chart

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