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  • The EUR has picked up a strong bid on reports that Italy is planning to cut its budget deficit to 2 percent in 2021.
  • The EUR/USD pair may fly high in Europe if the Italy-German yield spread drops sharply.

The EUR/USD jumped 50 pips to a session high of 1.1594 a few minutes before press time and was last seen trading at 1.1585.

The news that Italy intends to rein in its budget deficit to 2 percent of GDP in 2021 likely put a strong bid under the common currency.

The EUR/USD may find acceptance above 1.16 in Europe if the spread between the 10-year Italian government bond yield and its German counterpart falls sharply from the 5-year high of 300 basis points reached yesterday.

The common currency fell in the previous five trading days as Italy government’s decision to adopt a budget deficit target of 2.6 percent triggered fears of a ratings downgrade.

EUR/USD Technical Levels

Resistance: 1.16 (5-day EMA), 1.1640 (50-day EMA), 1.1660 (50% Fib R of recent drop)

Support: 1.1536 (session low), 1.1505 (previous day’s low), 1.1422 (76.4% Fib R of 1.1301/1.1815)