- The EUR’s repeated failure to climb 1.16 is a slight cause for concern for the bulls.
- Italy approved a fiscal plan, which could lead to a clash with the EU.
- Italy-German yield differentials could rise in the EUR-negative manner. German Zew survey could influence the EUR pairs.
The EUR/USD may feel the pull of gravity in Europe as the Italy-German yield differential may rise in the EUR-negative manner, courtesy of Italy’s expansionary fiscal policy.
Italy’s government late Monday approved a draft budget law, under which the budget deficit is set to widen to 2.4% of the gross domestic product, in defiance of EU rules that require a shrinking deficit. Further, the EUR officials fear that the real deficit could go much higher than 2.4 percent.
As a result, the spread between Italy and German 10-year government bond yields, which has already risen to five-year highs above 300 basis points, could rise even further, sending the EUR lower.
The bearish pressure around the EUR could also strengthen if the German Zew surveys, scheduled for release at 09:00 GMT, prints below forecast.
Technically speaking, the EUR/USD’s persistent failure to scale the psychological hurdle of 1.16 in the last three trading days indicates that the corrective rally from the recent low of 1.1432 has likely run out of steam.
At press time, the EUR/USD is trading on the defensive at 1.1574, having clocked a high of 1.1592 earlier today.
EUR/USD Technical Levels
Resistance: 1.1610 (Oct. 12 high), 1.1624 (38.2% Fib R of 1.1815/1.1432), 1.1669 (61.8% Fib R of 1.1815/1.1432 and 100-day exponential moving average)
Support: 1.1561 (10-day exponential moving average), 1.1540 (previous day’s low), 1.15 (psychological support)
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