EURUSD Remains Under Selling Pressure as Italian Bond Yields Jump
Euro, US dollar and Italian Bond Yields Talking Points:
- Italian 10-year bond yield hits 3.50% -- nearly 300 basis points more than Germany.
- Robust US labor market underpins US dollar strength.
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EURUSD Set for the Next Leg Lower
The Euro remains under pressure at the start of the week with Italian government bond yield rising further, dragging the 10-year BTP/Bund spread out to nearly 300 basis points, pointing to a weaker euro. The latest move higher in Italian yields reflects increasing concerns from the EU Commission that Italy’s budget is a ‘source of concern’ prompting fears of a showdown between the two. Italian 10-year yields have doubled since early May and are likely to test 4.00% in the short-term.
Friday’s non-farm payrolls report was a mixed bag with a lower headline jobs report print but a strong upward revision in the prior month and a near five-decade low in the unemployment rate. The US dollar basket (DXY) remains in good technical shape – comfortably above all three moving averages – and is looking to re-test the 50% Fibonacci retracement level at 95.87 which would leave 96.60 – a 16-month high – as the next target.
US Dollar Basket (DXY) Daily Price Chart (January 2017 – October 8, 2018)
EURUSD continues to trade either side of 1.1500 with support seen at 1.1464 ahead of 50% Fibonacci retracement at 1.14480. If broken and closed below, then 1.1300 comes into play.
IG Client Sentiment Datashows how investors are currently 56.8% net-long EURUSD and combined with recent positional shifts, we get a strong bearish contrarian trading bias.
EURUSD Daily Price Chart (November 2017 – October 8, 2018)
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.