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  • Euro sold-off into a chaos in Italy’s bond markets, as Italian politics weigh.
  • Fails to find respite from Fed Bullard’s dovish remarks, further downside opening up.

The EUR/USD pair came under aggressive selling pressure last hour and went to hit the lowest levels since November 2017 at 1.1586, as the rout in the Italian bond markets continues to cast a dark shadow on the common currency amid looming uncertainty around the Italian political climate.

Euro dumped on mounting EU political worries

With the Italians heading to another poll in September, markets are worried whether the fresh elections would deliver a stronger mandate to the anti-Euro parties. The looming concerns have crashed the investor confidence in the Italian bond markets, sending the 2-year Italian yields above 1% for the first time since 2014. Rising Italian bonds yields, in turn, have pushed the Italian-German yield spread to a five-and-a-half year highs, which is seen as EUR-negative.

Adding to the Italian woes, the political scenario in Spain is also worsening, with ongoing Catalan political problems while Spanish Prime Minister Mariano Rajoy is likely to face a vote of confidence on Friday.

The bears now look to test the Nov 2017 lows of 1.1554, as the US dollar remains unfazed by the dovish comments delivered by the St. Louis Fed President Bullard, standing tall at 94.53 against its major rivals.  

In the day ahead, the political risks will continue to weigh on the Euro ahead of the speeches by the ECB members Mersch and Lautenschlaeger.

EUR/USD Technical Levels

Haresh Menghani, Analyst at FXStreet, notes: “the technical picture suggests highly oversold conditions on daily charts and thus, warrant some consolidation/rebound in the near-term. Any meaningful recovery, however, is likely to confront fresh supply near 1.1660 area, above which the momentum could get extended towards reclaiming the 1.1700 handle. The mentioned hurdle represents an important support break-point, marked by 38.2%  Fibonacci  retracement level of the 1.0341-1.2556 upsurge, and might now keep a lid on any subsequent recovery.”  

“On the flip side, sustained weakness below the 1.1600 handle is likely to pave the way for an extension of the pair’s ongoing bearish trajectory, initially towards 1.1555 intermediate support (Nov. 2017 lows) en-route 50% Fibonacci retracement level support near the key 1.1500 psychological mark,” Haresh adds.