24.10.201802:17 Forex Analysis & Reviews: EUR/USD: Erdogan and Italians will set the tone for the mood of traders

The dollar index is growing, reflecting the fundamental picture of recent days. The first days of the trading week are not saturated with macroeconomic releases, so the foreign exchange market focused on three points of geopolitical tension. It's about the murder of a Saudi journalist, the Italian budget crisis and Brexit. These topics do not intersect with each other, but overall affect the mood of traders and somehow determine the dynamics of trading.

The euro-dollar pair is no exception here - on the contrary, this pair is subject to the greatest pressure of the external fundamental background: Italy and Brexit have an impact on the single currency, and the tragic incident with the Saudi journalist provides temporary support to the dollar due to the growth of geopolitical tensions.

Saudi Arabia officially recognized the fact that the opposition member Jamal Khashoggi, was killed in the consulate of the country in Istanbul. But, according to them, it was an accident, in the course of a sudden fight. However, in the Turkish press there are other versions of the incident, the essence of which boils down to the fact that the journalist was killed intentionally. The current situation has exacerbated relations between Washington and Riyadh, despite close military and economic cooperation.

Donald Trump has already managed to say that he is dissatisfied with the explanations of the Saudis. The US president was supported by representatives of Canada, Australia and Germany. Trump also added that "high-ranking American intelligence officers" are now in Turkey (according to media reports – including the head of the CIA), who are investigating the murder. In turn, Turkish law enforcement agencies reported that they have evidence (both video and audio), which confirm the version of premeditated murder, moreover, by a group of agents of the special services. At the moment, Turkey has not filed official charges in this case, but today the President of the country, Recep Erdogan, plans to address this as he makes an official statement in Parliament on this occasion.

Here it is worth noting that there is an agreement on the supply of weapons for $110 billion between the US and Saudi Arabia, and this deal was actively lobbied personally by Trump, who is now trying to maintain business relations between the countries. But if the premeditated murder is proved by the security forces, the US president will not be able to ignore such a blatant fact. Consequently, the United States will have to respond to the situation with the use of sanctions measures – all the more so given the proximity of the Congressional elections.

Saudi Arabia is one of the largest investors in the world and it is the largest exporter of oil, which also concludes contracts for the supply of weapons to its country for tens of billions of dollars. If Washington has to apply sanctions to this country, this fact can affect not only the oil market, but also the currency market. On the eve of the key statement of the Turkish president, traders "out of habit" flee from risk to the dollar, but if the situation takes a really serious turn in the context of mutual sanctions, the US currency is unlikely to "keep the defense", as the consequences of the conflict will affect the country's economy.

However, the European currency is entirely focused on the Italian issue. To date, Brussels and Rome exchanged "letters of happiness": the European Commission rejected the submitted budget with a high deficit, while the Italians justified the need for such a deficit in response to the appeal, promising to work to reduce public debt in 2020 and 2021. The EU leadership is unlikely to heed Rome's requests - the rhetoric of high-ranking politicians testifies to the categorical position of the Alliance.

This situation put pressure on the euro, and today it fell to 1.1433 in the pair with the dollar. But a few hours after the start of the European session, the pair showed growth – traders reacted to the publication of an article in one of the Italian Newspapers. It argues that Rome is ready to revise the budget if the situation in the markets deteriorates. On the one hand, it is not known where the "red line" is located, after overcoming which the Italian government will revise its budget plans, but, on the other hand, the very fact that the authorities are ready to compromise, supports the single currency. At least, it restrains it from slipping to the bottom of the 14th figure, where the support level is located.

Thus, the empty economic calendar has reoriented the market to an external fundamental background. The situation with the murder of the Saudi journalist today can continue after the speech of the Turkish President in the Parliament. The Italians can also support the growth of the pair, if they officially hint at a willingness to compromise. It is these two factors that will determine the dynamics of the EUR/USD pair in trading for today.

In technical terms, the situation has not changed since yesterday. The pair is still between the middle and lower lines of the Bollinger Bands indicator on the daily chart, and the Ichimoku Kinko Hyo indicator shows a bearish "Parade of lines" signal. This combination of indicators allows the price to drop to the bottom of the 14th figure, that is, to the resistance level that corresponds to the lower line of the Bollinger Bands. The bulls of the pair, in turn, still need to overcome the mark of 1.1620 to counterbalance the development of the downward scenario.