EUR/USD has recorded small gains in the Monday session. Currently, the pair is trading at 1.1694, up 0.30% on the day. On the release front, there are no major events in the eurozone or the U.S. The eurozone will release Sentix Investor Confidence and PPI. On Tuesday, Germany releases Final Services PMI and retail sales. The U.S will release ISM Non-Manufacturing PMI.
In Italy, a new government was sworn in on Friday, ending months of twists and turns on the political front. The coalition is made up of two euro-sceptic parties, the League and the Five-Start Movement, which is likely to result in tensions between Brussels and Rome. After President Sergio Matterella vetoed the choice for finance minister last week, it appeared that the country might be headed for another election, and Italian stocks and bonds dropped sharply. However, the crisis is over after the prime minister-elect, Giuseppe Conte, found another candidate for the key finance post. The new government has said it will drastically reduce immigration and raise spending, planks which could put it at odds with EU policy. Although the League and Five Star Movement have not issued any threats to withdraw from the EU or even hold a referendum, there is plenty of concern among investors that the fourth largest economy in the eurozone is being steered by a government with a populist, anti-establishment platform.
The U.S released strong employment numbers on Friday, but the dollar posted only slight gains against the euro. Wage growth improved to 0.3%, up from 0.1% a month earlier. Nonfarm payrolls jumped from 189 thousand to 164 thousand and the unemployment rate dropped to a sizzling 3.8 percent. All three indicators beat their estimates and are indicative of a labor market running at full capacity.
After a brief hiatus, the markets are again facing the nasty reality of a trade war between the U.S. and its major trading partners. On Thursday, the Trump administration made good on its threats and imposed stiff tariffs on the European Union, Mexico and Canada. The U.S had granted all three trading partners a temporary extension, but cited insufficient progress on trade talks as the reason for the tariffs. There are renewed fears that these moves could trigger a global trade war. This has triggered promises of retaliatory tariffs on US products, and matters heated up on the weekend at the G-7 meeting of finance ministers in Canada. US Treasury Secretary Steve Mnuchin faced sharp criticism from other finance ministers over the tariffs. There are fears that the escalating trade tensions could trigger a global trade war, which could have a devastating effect and lead to sharp losses on the stock markets.
