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EURUSD Remains Fragile as Italian Risk Continues to Rise

EURUSD Remains Fragile as Italian Risk Continues to Rise

Nick Cawley, Senior Strategist

EURUSD News and Talking Points

- A Five Star Movement/Northern League tie-up will ring alarm bells in Brussels.

- USD pauses before the next move higher.

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EURUSD Likely to Come Under Further Downside Pressure

The possibility of a populist government in Italy – made up of the anti-establishment Five Star Movement and the far-right Northern League – will weigh heavily on an already-weak Euro. Discussions are ongoing between the two parties, and are expected to continue over the weekend and beyond, and any sign that a new populist government is imminent will send Italian bond yields – a gauge of risk – even higher and the EUR lower. Italian bond yields jumped to a six-week high on Thursday as news of the discussion filtered out and are expected to stay elevated despite the ECB’s ongoing QE program. A joint government would likely ramp-up pressure on EU budget restrictions and take a tougher stance on migration policies, adding pressure on the EU at the same time as they try to deal with the complexities of the UK leaving the single-block.

EURUSD has recovered some poise in early trade Friday, due mainly to the US dollar pausing after its recent run-up, but the technical backdrop for the pair remains weak with fresh multi-month lows in sight. The pair continue to trade below the 200-day moving average, with the 20-day day ma likely to trade through the 200-day ma as well. The 200-dma offers resistance around 1.20550 ahead of 1.20910 and 1.21547. On the downside the December 12 low at 1.17175 protects 1.16693 and the November 7 low of 1.15540.

The latest IG Client Sentiment Indicator also adds weight to a further fall in EURUSD with retail traders’ net-short positions falling over the week, giving us a stronger EURUSD bearish bias.

EURUSD Price Chart Daily Timeframe (July 2017 – May 11, 2018)

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What’s your opinion on the EURUSD? Share your thoughts with us using the comments section at the end of the article or you can contact the author via email at or via Twitter @nickcawley1

--- Written by Nick Cawley, Analyst

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.