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Italian 10 year bond yields are at 7.34%, crossing the 7% Rubicon that means a bailout. EUR/USD certainly reacted with a drop, but it still manages to hold on to critical support and remains in the range that characterized it.

Berlusconi’s tentative resignation didn’t help. When LCH Clearnet SA announced that margins would be raised, yields jumped. 10 year benchmark yields stood on “only” 6.80% before the declaration. Note that the margin requirements take effect only tomorrow.

Also other yields reacted in the same manner: 2,3,5 year and whichever chart you look at, screams.

While  EUR/USD is definitely suffering from a major fall, but it critical support hasn’t taken out. Not yer. The pair fell from the top of range, 1.3838 to 1.38, and then crashed all the way to 1.3660 when bonds began screaming.

But it still holds on to critical support at 1.3650 that has been the bottom border of the range for some time.

1.3650 needs to be broken in order for the move to be truly convincing.

Further support is at 1.36. For more on the euro, see the EUR/USD forecast.

Update: Yields continue rising, but EUR/USD remains above support. 10 year yields: 7.40%, EUR/USD 1.3660. It’s getting close!

Update 2: Critical support finally broken, EUR/USD now supported by 1.36.

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