EUR/USD Forecast: Remains capped below 55-day EMA amid Italian budgetary concerns

The shared currency regained positive traction at the start of a new trading week, pushing the EUR/USD pair back above the 1.1600 handle. The positive momentum was supported by some renewed selling pressure surrounding the US Dollar, which struggled to build on Friday's goodish up-move and was further weighed down by disappointing US monthly retail sales data. 

The positive momentum, however, once again failed to sustain above the 1.1600 handle and fizzled ahead of 55-day EMA. Concerns over Italy's controversial budget proposal and the latest German political developments, where Chancellor Angela Merkel’s conservative allies registered the worst result in decades in regional elections, kept a lid on any runaway rally. 

The pair retreated farther below the 1.1600 handle during the Asian session on Tuesday and was further weighed down by widening Italy-German yield differential as investors brace for a possible clash with the European Commission over Italy's proposal to raise the budget deficit target to 2.4% of GDP. In the meantime, the release of German ZEW survey results will also be looked upon for some short-term trading opportunities. 

From a technical perspective, the pair's repeated failure to sustain/build on the momentum beyond the 1.1600 handle points to increasing selling bias near 55-day EMA. Moreover, technical indicators on the daily chart have also started losing positive momentum and thus, increase prospects for the resumption of the prior depreciating move. 

A convincing break below the 1.1530-20 region, nearing 23.6% Fibonacci retracement level of the 1.1815-1.1432 recent slide, will reinforce the negative outlook and turn the pair vulnerable to accelerate the fall towards 1.1480-75 intermediate support. 

On the flip side, attempted moves beyond the 1.1600 handle might continue to confront some fresh supply near the 1.1615-20 region, coinciding with 50% Fibonacci retracement level. A convincing break through the mentioned barrier might negate the bearish setup and prompt some short-covering bounce, assisting the pair to aim towards reclaiming the 1.1700 handle.