EUR/USD: Widening Italy-DE yield differential is EUR-negative
|- Fitch downgraded Italy on Friday, Italy-German (DE) 10-year yield spread rose to fresh 5-year highs.
- The EUR/USD closed below the 10-day moving average (MA), neutralizing the short-term bullish outlook.
- The Italians come before rating agencies, deputy PM says.
- The yield differential looks set to widen further in the EUR-negative manner, the chart shows.
Currently, the EUR/USD is flat-lined around 1.16 but could feel the pull of gravity in Europe if the spread between the Italian and German bond yield spread continues to widen.
Italians come before rating agencies
Rating agency Fitch downgraded Italy's debt outlook to negative on Friday, citing concerns about the government's "new and untested nature" and it promises to hike spending.
In response, Deputy Prime Minister Luigi Di Maio said that Italians come before the rating agency and added that the alliance made up of 5-Star and the far-right League party will move ahead with the main campaign pledge - a universal income for the poor.
As a result, the yield spread could continue to rise in the EUR-negative manner. A similar sentiment is echoed by an ascending triangle breakout - a bullish continuation pattern - and a convincing move above the resistance at 283 basis points (May high) seen on the 10-year Italy-German yield spread.
EUR/USD Technical Levels
Resistance: 1.1614 (50-day moving average), 1.1655 (5-day moving average), 1.1690 (Friday's high)
Support: 1.1585 (Friday's low), 1.1530 (Aug. 23 low), 1.15 (psychological support)
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.