EUR/USD analysis: Italian political woes hit the EUR

Valeria Bednarik FXStreet

EUR/USD Current price: 1.1486

Tensions between the EU and Italy over the latest budget keep weighing the common currency.
The macroeconomic calendar will remain scarce on Tuesday, leaving political woes in the center stage.

The greenback appreciated against most of its rivals amid a risk-averse environment, this last, triggered by escalating tensions between the EU and Italy, over the budget approved by this last a couple of weeks ago. The EUR/USD pair fell to a fresh 6-week low of 1.1459, unable, however, to clear the strong static support level, stabilizing in the 1.1480 region later in the day. European equities collapsed to multi-month lows, with banking-related equities leading the slump, as Italian government bond yields surged to over 4-year highs, with Italian Salvini pointing a finger on Brussels for the bonds' sell-off and Deputy PM Di Maio claiming that anti-austerity views will grow stronger across the continent. US indexes opened sharply lower but managed to revert most of their intraday losses ahead of the close.

European data released Monday was quite discouraging, adding pressure on the EUR. The EU Sentix Investor Confidence Index for October fell by more-than-expected, down to 11.4 vs. the previous 12.0 and the expected 11.7. Furthermore, German Industrial Production fell in August 0.3%, vs. an expected advance of 0.4%, while the YoY reading matched markets' expectations with -0.1%. This Tuesday, there will only be some minor data from both economies, which will hardly make it to the price.

The dollar seems poised to extend its advance, as, once the market returns in full fashion, there are good chances that US Treasury yields will skyrocket. The EUR/USD pair 4 hours chart shows that the pair failed to sustain modest gains above a firmly bearish 20 SMA, now offering a dynamic intraday resistance at around 1.1500, as the Momentum maintains its bearish slope below its 100 level, but the RSI indicator stabilized right above oversold readings, amid the limited volume and the lack of follow-through. The 1.1460 price zone is a strong long-term static support, as the pair topped around it multiple times between 2015 and 2017, and won't be easy to break, but if it blows away, the pair has room to extend its slump down to 1.1250.

Support levels: 1.1460 1.1420 1.1475

Resistance levels: 1.1500 1.1530 1.1565

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Author

Valeria Bednarik

FXStreet

Valeria Bednarik was born and lives in Buenos Aires, Argentina. Her passion for math and numbers pushed her into studying economics in her younger years.

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