EUR/USD has posted slight gains in the Monday session. Currently, the pair is trading at 1.1644, down 0.03% on the day. There are no eurozone or U.S events on the schedule. U.S markets are closed for Memorial Day, so traders can expect a quiet day from the pair. On Tuesday, the U.S releases CB Consumer Confidence, which is expected to dip to 128.7 points.
Italian politics often provides dramatic moments, but even by Italian standards, the events on the weekend were truly extraordinary. Italy lurched into political crisis, as President Sergio Mattarella vetoed the choice of economic minister by the two parties entrusted with forming a coalition, the League Nord and the Five Star Movement. Mattarella rejected the suggestion of Paolo Savona for economic minister, given that Savona is a firm critic of the euro and supports Italy exiting from the eurozone. The head of the Five Star Movement demanded that Mattarella be impeached, charging that the president was taking orders from Brussels. On Friday, Moody’s rating agency said that it could reduce Italy’s sovereign debt rating over fears of the new government’s fiscal policies. The current impasse may trigger new elections, which could sour investor sentiment and send the euro lower.
The ECB is scheduled to wind up its massive stimulus program in September, but weak growth in the first quarter has raised speculation that the bank could decide to extend the program, a tactic it has often used in the past. Still, most analysts believe that the ECB will go ahead and terminate stimulus, but there is more uncertainty regarding future rate hikes. Higher oil prices and a weaker euro will likely mean that inflation is moving upwards, but core inflation projections, which ECB policymakers are most interested in, are expected to remain below the ECB inflation target of just below 2 percent. Investors will be keeping a close look at upcoming rate statements, looking for clues regarding the wind-up of the stimulus scheme.
