30.05.201902:00 Forex Analysis & Reviews: Euro and INSTEX

The single currency was under pressure again - this time because of the sharp statements of Italian politicians, as well as because of the prospects for sanctions pressure from the United States. On the other side of the scale, Brexit unexpectedly appeared, or rather, a statement by the Prime Minister of Ireland, Leo Varadkar, who allowed the option of another delay for London. Also, traders closely monitor the process of political struggle for key positions in the EU structure - especially in the context of the early departure of Mario Draghi from the post of head of the ECB. In addition to all the above, a very weak macroeconomic statistics was published in Europe yesterday, which also put additional pressure on the euro. Such a mixed fundamental background did not allow the EUR / USD bulls to develop a correction, and thus, the price went to the base of the 11th figure again.

A new round of geopolitical tensions has become apparent on the conventional US-EU-Iran conditional line. It all started with the creation of a financial mechanism INSTEX (Instrument of Support for Trade Exchanges). This mechanism is a joint development of the British, Germans and French. It was coined for trading with Iran without the use of US dollars and US banking institutions.

It is worth recalling that in November last year, the States introduced new sanctions against Iran: Trump unilaterally withdrew from the "Nuclear Deal" and accused Tehran that Iranians secretly continue to develop nuclear weapons. The objects of sanctions are primarily the Iranian oil sector, as well as other sectors of the economy - the banking industry, shipbuilding, shipping and so on. At the same time, the Trump Administration made a list of "beneficiaries" - Washington provided special exemptions for 8 countries (China, India, Greece, Italy, Taiwan, Japan, Turkey and South Korea), allowing them to temporarily import Iranian oil even after the imposition of sanctions. But in May of this year, the United States banned these countries from having trade relations with Tehran.

In addition, Iran was disconnected from the SWIFT international payment system, after which any financial relations of the Iranian business with foreign partners faced serious difficulties. Against the background of such events, the key countries of Europe (Germany, France, Britain) announced the creation of a special mechanism for settlements with Tehran, which makes it possible to bypass large-scale sanctions from the United States. The mechanism was created in January, but since then the Europeans have not dared to switch to its practical application (by the way, the Iranians have often criticized Brussels for this indecision). Americans also calmly reacted to the creation of INSTEX, although they expressed some concern.

However, this week, the story got an unexpected continuation. American journalists got access to the memorandum of US Deputy Secretary of the Treasury Sigal Mandelker, who oversees counter-terrorism and financial intelligence issues at the White House. The general conclusion of this document is that Washington is ready to impose sanctions on any official or businessman who is somehow connected with the activities of INSTEX. The document stipulates that restrictive measures can be taken in the event that the use of this financial mechanism begins. The USA, in particular, threatened to exclude all officials involved in the creation of INSTEX from its financial system.

Given the fact that this information is unofficial, Brussels did not respond to its publication. But the market reacted accordingly, getting rid of the single currency. It is worth noting that the euro is quite sharply responding to such rumors, given the volume of trade between the EU and the United States. Suffice it to recall the recent panic over the increase in American duties on the import of European cars. At the last moment, Trump decided to postpone this issue for 6 months, allowing the working group to continue negotiations. But in the case of INSTEX, the situation is different: there will be no concessions here, especially considering the recent events in the Persian Gulf. That is why the single currency showed a decline across the market yesterday. After all, if the Europeans still insist on the functioning of this financial mechanism, the Americans will inevitably launch the flywheel of sanctions.

Macroeconomic reports also put additional pressure on the Euro yesterday. First of all, the German data was disappointing: the unemployment rate unexpectedly rose to 5% (while for two months in a row it went out at around 4.9%), and the number of unemployed jumped immediately to 60 thousand, while experts predicted a decline of 8 thousand. The French figures were also disappointed: the growth of inflation in France slowed down, while the GDP indicator in quarterly terms came out at the level of previous periods, although experts expected a more substantial growth.

Thus, the EUR/USD pair has every chance to test the area of annual minimums again, declining to the level of 1.1105. For an attempt on the 10th figure, a more compelling reason is needed. Therefore, the bears will most likely limit themselves to this level of support.