EUR/USD: Focus on Italian bonds and Draghi speech

• The EUR fell below the 20-day SMA on Friday, signaling the recovery rally has likely ended.
• The pair may pick up a bid today if Italian government bond yields continue to rise despite lingering budget tensions.
• The investors will pay attention to what Draghi says about the Eurozone economy, interest rates and Italy.

The EUR/USD closed well below the 20-day simple moving average (SMA) on Friday, signaling the recovery rally from the recent low of 1.1415 has likely found a temporary top at 1.1472.

Further, the spot hit a ten-day low of 1.1326 in Asia, validating the Friday’s bearish close below the 20-day SMA.

Friday’s losses, however, could be erased if the spread between the Italian 10-year government bond yield and its US counterpart continues to narrow.

It is worth noting that the European Commission (EC) initiated excess deficit procedures against Italy  last week after the nation refused to substantially alter its budget proposals.  The bond yield spread, still, eased to 307 basis points on Friday – down 20 basis points from last  high of 327 bps reached last Tuesday.  

The common currency may also pick up a bid if ECB’s Draghi while speaking in the European Parliament, downplays the recent slowdown in the German economy and risks arising out of the Italian budget crisis. The gains, however, could be moderate as the central bank President is also expected to reiterate that rates would remain low for some time after the asset purchases are complete.

 EUR/USD Technical Levels