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  • Stabilizing Italian bond markets offer some respite to the EUR bulls.
  • But a rebound in Treasury yields and Italian political woes to cap the rebound.
  • Eyes German CPI and US GDP for fresh trading incentives.

The EUR/USD is seen consolidating its recovery from ten-month troughs of 1.1511, as the bulls faced exhaustion just below the 1.16 handle, now awaiting the German prelim CPI report for the next move higher.

EUR/USD: A dead cat bounce?

The common currency was offered some support by stabilizing Italian bond markets, as Italy’s bond yields dropped across the curve, which prompted a rebound in the spot from the lowest levels since July last year.  

Further, yesterday’s comments by Italy’s Five Star movement leader Luigi Di Mai, citing that he never sought a Euro exit, also aided the EUR/USD recovery.  However, the major appears to have stalled its corrective rally amid rebounding Treasury yields, with the 10-year Treasury yields up 11 bps to trade near 2.86%.

Meanwhile, looming political uncertainty in Italy also keeps a cap on the upside attempts, as attention now turns towards the German CPI, US ADP jobs and prelim GDP data for fresh trading opportunities.

EUR/USD Technical Levels

Haresh Menghani, Analyst at FXStreet, notes: “Any meaningful recovery attempt is likely to confront fresh supply near the 1.1575-80 zone and is followed by resistance near the 1.1620-30 region. A follow-through up-move beyond the above-mentioned hurdles could further get extended towards a confluence resistance near the 1.1700 handle, comprising of the descending trend-channel resistance and 38.2%  Fibonacci  retracement level of the 1.0341-1.2556 up-move.”

“On the flip side, sustained weakness below the 1.1510-1.1500 region could get extended but now seems to be limited by support near mid-1.1400s, representing another confluence region comprising of 50% Fibonacci retracement level and the descending trend-channel support,” Haresh adds.