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  • Italy’s budget crisis continues to weigh on the euro.
  • Risk-off mood ramps up the demand for safe-havens.
  • USD/JPY break below 113 for the first time in two weeks.

The EUR/JPY failed to hold above the critical 130 handle on Monday and fell to its lowest level since mid-September at 129.50 as the risk-off mood continues to dominate the markets. As of writing, the pair was trading at 129.60, losing 1.05% on a daily basis.

The uncertainty surrounding the budget crisis and the EU’s response to it forced the spread between the Italian and German 10-year bond yields to widen further. Earlier today, Italy’s Deputy Prime Minister Salvini said that an exit from the euro was not on their agenda but added that they wanted to change the EU rules. Although later in the day  Italy’s EU Affairs minister Savona reiterated that no one in the Italian government wanted to leave the EU, these comments did little to nothing to help the euro as the shared currency remains on track to close the day lower against its major rivals including the dollar and the pound sterling.  

Commenting on today’s developments, “The enemies of Europe are those sealed in the bunker of Brussels,” Matteo Salvini Italian Deputy Prime Minister. Is this a reference to the most famous bunker in European history?   When Brussels speaks Italians are likely to hear the voice of Berlin. Germany needs to tread lightly. As the American novelist William Faulkner said. “The past is never dead. It’s not even past”,” FXStreet Senior Analyst Joseph Trevisani said.      

Rome and Brussels should be careful that a dispute over budgets does not become a question about the European Project. It is a delicate moment in history.  

On the other hand, as one of the preferred safe-haven assets, the JPY stays strong on Monday. In addition to Italian political drama, the lack of progress in the U.S. China talks weighs on the sentiment as well. Despite the low trading volume due to Columbus Day holiday in the U.S., the Dow Jones Industrial Average and the S&P 500 indexes  are down 0.35% and 0.6% on the day.

Technical levels to consider

The pair could face the first technical support at 129.50 (100-DMA) ahead of 128.75 (Sep. 11 low) and 128 (psychological level/Sep. 7 low). On the upside, resistances are located at 130 (psychological level), 131.20 (daily high) and 131.90 (Oct. 3 high).