EURUSD Sell-Off Continues on Italian Budget Concerns, USD Strength
Euro and US dollar Talking Points:
- Italian government bond yields edging back to multi-year highs.
- US dollar remains strong, underpinned by NAFTA 2.0.
EURUSD May Make a Fresh Low for the Year
A combination of ongoing Italian budget concerns and a US dollar invigorated by a last-minute NAFTA deal may push EURUSD back to the low seen on August 15 at 1.1300. with support levels looking shaky. In addition, last Friday’s Euro-Zone inflation print disappointed on the downside with the core reading falling to 0.9% from a prior month’s 1.0%, still substantially below the ECB’s mandate of around 2%.
Italian budget concerns continue to rumble on, putting pressure on the country’s debt pile. 10-year yields are looking to make new multi-year highs (yields go up when prices go down) with the EU Commission looking likely to reject the budget in November, leaving Italy at the mercy of an unforgiving bond market. 10-year Italian bond yields are currently just over 3.20%, around 270 basis points more than comparable German debt (0.48%) and 168 basis points more than 10-year Spanish bonds (1.52%).
The Italian stock market – MIB 40 - is around 0.75% higher in early turnover after falling by nearly 4% at one stage on Friday with banking stocks bearing the brunt of the move.
The US dollar continues its revival post-FOMC and is nearing a three-week high after news broke that the US, Canada and Mexico had reached a new three-way trade agreement called USMCA which will replace the old NAFTA agreement.
EURUSD Daily Price Chart (December 11, 2017 – October 1, 2018)
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