22.10.201817:58 Forex Analysis & Reviews: Global macro overview for 22/10/2018

The announcements of fiscal stimulus in China help calm moods and provide the Shanghai stock exchange with the best session in three years. It seems that the risks associated with Italy are already in the prices, and the Brexit case may move in the right direction. The currency market keeps tight ranges of fluctuations, but it is possible to shift in line with the increase in risk appetite.

EUR climbs up across the board today with the help of falling yields on Italian debt. This is a reaction after the Moody's decision on Friday to cut Italy's rating, but the cut was only 1 degree and maintained a rating above the threshold separating the investment status from junk. The rating outlook has been changed from negative to stable, which removes the risk of further cuts. This looks good for the Rome-Brussels dispute over the shape of next year's budget. Admittedly, at the end of the week, the S&P rating agency will take its decision, but in April it confirmed the BBB rating, so now a cut of 2 degrees (to reach the junk status) is unlikely. Despite this, traders are not completely deprived of the risks associated with Italy, as they need to explain to the European Commission the breach of the rules of fiscal savings. The press reports that Rome is not going to withdraw from plans to raise the deficit to 2.4% GDP, so the global investors are still facing the perspective where the EC will order budget changes under penalty. As a result, the EUR can not completely shake off the risk premium, although for the time being it is not enough to abuse the currency.

Let's now take a look at the EUR/USD technical picture at the H4 time frame. The market has retraced 61% of the previous swing down and currently, is retracing towards the technical support at the level of 1.1445. This is an important support level as any violation of this level would lead to the test of the next support at the level of 1.1432 and even a breakout lower towards the level of 1.1409. Please notice, the negative momentum supports the shoer-term bearish bias.