EUR/USD holds below 200-day MA, focus on US-Italy yield differential

• EUR/USD suffered a rising wedge breakdown and closed below the 100-day moving average (MA) yesterday, putting the EUR bears back into the driver’s seat.
• The pair may suffer a deeper sell-off if the 10-year Italy-German yield differential rises in response to Italy’s budget issues.

The EUR/USD is trading on the defensive below the 100-day MA of 1.1652 and could suffer a deeper sell-off today if the Italy-German bond yield differential rises in the EUR-positive manner.

The currency pair closed at 1.1641 yesterday, confirming a rising wedge breakdown. The bearish pattern indicates that the corrective rally from the Aug. 15 low of 1.1301 has ended and the bears have regained control.

Focus on Italy-German yield spread

Reuters reported earlier today that the Italian government has set a budget deficit target of 2.4 percent of gross domestic product (GD) for the next three years, defying Brussels ‘s demands that Italy cut the fiscal deficit to address its high debt.

As a result, the spread between the 10-year Italian government bond yield and its German counterpart could spike, bolstering the already bearish technical setup in the EUR/USD.

Also, if the yield spread does spike, then the markets may not pay much attention to the preliminary Eurozone CPI, scheduled for release at 09:00 GMT.

EUR/USD Technical Levels

Resistance: 1.1652 (100-day MA), 1.1708 (10-day MA), 1.1733 (Aug. 28 high)

Support: 1.1633 (previous day’s low), 1.1612 (50-day MA), 1.1526 (Sept. 10 low)