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  • Prospects of US-China trade talks could keep the equities and EUR better bid today.
  • The upside in the EUR/USD could be capped by fears that Italy is set to smash the EU budget rules.

The prospects of the US and China moving back to negotiating table triggered a corrective rally in the EUR/USD pair in the second half of the last week.

As of writing, the spot is trading at 1.1432, having clocked a low of 1.1301 on Aug. 15.

The immediate resistance of 200-hour moving average (MA) of 1.1442 could be pierced today if the risk assets continue to cheer the possibility of renewed US-China trade talks. However, investors are cautioned against being too ambitious as concerns over Italy’s fiscal roadmap could limit the upside in the EUR.

Moreover, reports are doing the rounds that Italy’s populist government is considering a ‘Marshall Plan’ of up to EUR 80 billion to revamp the country’s infrastructure after the Genoa bridge collapse. If implemented, the fiscal spending would put Italy on a collision course with the EU. Hence, the EUR may find it hard to register big gains today.

The common currency could take a hit if the 10-year Italy and German yield spread spikes. The Eurozone producer price index and Bundesbank’s monthly report, due today, are unlikely to have a significant impact on the EUR pairs.

EUR/USD Technical Levels

Resistance: 1.1441 (200-hour moving average), 1.1508 (June 21 low), 1.1616 (50-day moving average)

Support: 1.1387 (5-day moving average), 1.1351 (200-week moving average), 1.1301 (Aug. 15 low)