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Analyst at Danske Bank Aila Mihr suggested the pair could now look to stabilize around the 1.1800 neighbourhood.

Key Quotes

EUR/USD touched December lows yesterday aft er the combination of USD support from rates and EUR downside form Italian government worries continued to weigh”.

“For now, the US cyclical position warrants USD strength but we do not see the Italy issue as an FX market game changer as notably a euro exit does not form part of the coalition talks”.

“Focus this week will be whether the relative cyclical positions of the US versus the eurozone will be upheld when PMIs are released and the central bank takes this on in the Fed versus ECB minutes”.

“In the absence of further cyclical divergence, we expect EUR/USD to settle in a range around 1.18 (our 1M forecast) near term as positioning is now markedly lighter on longs; the next key technical support is around 1.1678 (10-Nov high)”.