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The European session was a negative for the euro that dropped on the back of continued fears over the contagion that the Italian markets could bring for the peripherals   – notably, Italian banking stocks were lower and there is no sign of let-up.  

The major European indices in a sea of red:

  • Spain’s Ibex  -1.1%
  • Italy’s FTSE MIB -0.23%
  • Portugal PSI20  -0.4%
  • German Dax  -0.5%
  • France’s Cac  -0.7%
  • UK’s FTSE -0.2%

“The sell-off in the Italian bond market continued overnight with the yield on the 10-year BTP rising 15bps to 3.45%, the highest since 2014, and the spread versus German bunds widening out to 302bps,” analysts at Scotiabank noted, adding, “The EU Finance Minister’s lack of endorsement for the budget proposal and warnings from Germany over the need to maintain debt sustainability helped fuel the sell-off. Budget details are still unavailable but the real anxiety surrounds the medium-term path of spending and debt. There is no evidence to suggest the sell-off has run its course. “

Central bank divergence confirmed, positive for EUR/JPY/ USD/JPY – Nomura

EUR/JPY levels

“We have a support line coming in today at 130.49 and ideally, we will see the market remain underpinned here. Above 133.34 lies the 135.24 1979-2018 downtrend line. Still further up sit the 137.51 2018 high and the 138.02 2008-2018 resistance line. Initial support below the support line is the  55 day  ma at 129.62,” analysts at Commerzbank argued.