USD: Rebound against the euro may extend - Rabobank

Given that the interest rate differential between the US and the Eurozone is likely to widen further in the coming months (Rabobank expects at least two more hikes by the Fed this year), the recent rebound in the US dollar against the euro may extend, according to analysts at Rabobank.

Key Quotes

“It is worth pointing out that the latest weekly CFTC data revealed a sharp fall in EUR longs from the record highs set in the previous week. Given that longs remain at relatively elevated levels, a correction in EUR/USD may extend. The 1.1905 is a valid technical target for EUR/USD, although an important support area around 1.1940 level needs to be cleared first to expose lower levels.”

“The resurfacing of political risk in Italy could also weigh on the euro. “At this stage there is no solution other than returning to elections as soon as possible”, the leader of the anti-establishment Five Star Luigi Di Maio announced after his attempts to form a coalition government failed. Maio called for Northern League's support in holding a repeat election in June. Italy’s 10-year yield rose to an intraday high of 1.815% before trimming its gains to 1.78%. There is no guarantee that snap polls would end the political gridlocks that paralysed Italy after the inconclusive general election held in March. With support at around 33% Five Star remains the most popular party, but it is short of the absolute majority.”