EURUSD Downside Still Favoured Despite Italian Bond Boost
Euro and US dollar:
- Italian government bond yields fall after Moody’s cuts Italy to just above junk status.
- ECB meeting on Thursday – no change but more details.
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EURUSD Capped and in Limbo
The euro opens the week slightly higher against the US dollar, boosted by falling Italian government bond yields, a source of weakness over the past few weeks. Credit rating agency Moody’s cut Italian government debt by one notch to Baa3 from Baa2, one notch above junk status. The outlook was changed to stable, indicating that another ratings cut is not expected in the near future.Italian bond investors took this outlook change as a positive sign and sent BTP bond yields sharply lower (prices higher). Italian 10-year yields fell to 3.375% from around 3.75% last Thursday. This gave the single currency an early leg higher, but it is unlikely that yields will shift dramatically lower as the Italian budget is still under discussion with the EU.
Ahead, the latest ECB meeting will see all monetary policy levers left untouched. The central bank is expected to give its views on Italy, the impact of a hard-Brexit and the recent down-turn in the euro-zone economy.
EURUSD has picked-up from last Friday’s 1.14300 low and currently trades around 1.15400, aided in part by a slightly weaker US dollar. The US dollar basket (DXY) is currently 0.18% lower at 95.02. The upside looks capped by the 50-day moving average at 1.16079 and by last Wednesday’s high at 1.16215,
IG Client Sentiment Datashow how investors are currently 55.9% net-long EURUSD – a contrarian bearish signal – but recent daily and weekly positional shifts suggest a mixed trading bias for EURUSD.
EURUSD Daily Price Chart (February – October 22, 2018)
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