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Italian Bond Yields Lower But Euro Remains Weak

Italian Bond Yields Lower But Euro Remains Weak

Nick Cawley, Strategist

Italian Bond Yields – News and Prices:

  • Italian bond yields steady for now.
  • EU Commission may ask Italy to revise their plans.

We have just released our Brand New Q4 Trading Forecasts including USD and EUR.

EURUSD – Further Italian Pressure Ahead

The EU Commission is expected to ask Italy to re-submit its recent budget proposal - taking into account the blocs rules – paving the way for further disagreement between the two parties, and volatility in the common currency. The Italian government has already said that it will not budge from its stated position while the EU Commission has already warned Italy of its serious concerns, something echoed by rating’s agency Moody’s who cut Italy’s government debt rating recently to one notch above junk level.

According to reports, the EU Commission is likely to issue a ‘negative opinion’ and ask Rome to resubmit an improved budget which address the EU’s concerns.

Italian 10-year bond yields have moved higher over the last few months, and while they have drifted off their recent high print around 3.85%, the uptrend remains in place and points to higher yields/lower prices.

Italy 10-yr Bond Yield Weekly Price Chart (October 2013 – October 23, 2018)

Italian Bond Yields Lower But Euro Remains Weak

EURUSD remains at risk of any further escalation in the EU/Italy budget stand-off with investors shunning Italian bonds and buying high-quality German bonds instead. Lower German bond yields weaken the single currency, while higher Italian bond yields increase negative sentiment for the euro.

EURUSD is also under pressure from an increasingly strong US dollar complex. Yesterday US President Trump spoke about a major tax cut for middle earners, ahead of the US mid-term elections, while Fed speak today from Kashkari, Bostic and Kaplan, and the release of the Fed Beige book tomorrow are likely to confirm the ongoing strength of the US dollar.

EURUSD remains weak and a break below the 1.14322, the October 9 low, opens the way to the August 15 multi-month low at 1.13010.

IG Client Sentiment data show that 60.6% of retail traders are long of EURUSD, a negative contrarian position. However, further daily and weekly net-longs give us a stronger bearish trading bias.

EURUSD Daily Price Chart (December 2017 – October 23, 2018)

Italian Bond Yields Lower But Euro Remains Weak

Traders may be interested in two of our trading guides – Traits of Successful Traders and Top Trading Lessons – while technical analysts are likely to be interested in our latest Elliott Wave Guide.

What is your view on EURUSD – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author at nicholas.cawley@ig.comor via Twitter @nickcawley1.

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