EUR/USD charts bearish outside-day as Italy-German yield differential hits 5.5-year high

The EUR/USD created a bearish outside-day yesterday, signaling the recovery rally has likely ended.
The Italy-German yield differential hit 5.5-year high, reflecting rising concerns over Italy's budget.
The EUR could drop sharply if the European Union takes Italy to task over the budget deficit.

Omkar Godbole FXStreet Contributor

The EUR/USD is on the defensive ahead of the European Union's official response to Italy’s draft budget.

The common currency charted a bearish outside-day candle yesterday, signaling the recovery rally from the recent low of 1.1215 likely ended at the high of 1.1472 yesterday.

The sell-off was likely triggered by the rise in Italian sovereign yields. Notably, the spread between the 10-year Italian government bond yield and its German counterpart rose to 327 basis points yesterday - the highest level since April 4, 2013.

The fresh multi-year highs on the Italy-German yield spread reflects rising concerns that the European Union may launch disciplinary procedures against Italy in response to that country's refusal to respect EU financial rules. As a result, the EUR is likely to remain on the back foot ahead of the EU's response (due today).

More importantly, the Italy-German yield differential will likely rise further in the EUR-negative manner if the EU takes Italy to task over the budget issue.

The yield differential, however, may drop sharply, lifting the EUR back above the yesterday's high of 1.1472 if the EU softens its stance.

EUR/USD Technical Levels

EUR/USD

Overview:
    Last Price: 1.1373
    Daily change: 4.0 pips
    Daily change: 0.0352%
    Daily Open: 1.1369
Trends:
    Daily SMA20: 1.1368
    Daily SMA50: 1.1504
    Daily SMA100: 1.1558
    Daily SMA200: 1.1806
Levels:
    Daily High: 1.1473
    Daily Low: 1.1358
    Weekly High: 1.142
    Weekly Low: 1.1216
    Monthly High: 1.1625
    Monthly Low: 1.1302
    Daily Fibonacci 38.2%: 1.1402
    Daily Fibonacci 61.8%: 1.1429
    Daily Pivot Point S1: 1.1327
    Daily Pivot Point S2: 1.1284
    Daily Pivot Point S3: 1.1211
    Daily Pivot Point R1: 1.1442
    Daily Pivot Point R2: 1.1515
    Daily Pivot Point R3: 1.1558

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

AUD/USD bulls regain control above 0.6950 amid USD retreat

AUD/USD regains traction and extends the previous day's bounce from the weekly low, aiming for 0.7000 in Asia on Friday. The overnight pullback in US bond yields keeps the US Dollar below an 18-month high, which in turn offers some support to the pair. Meanwhile, hawkish RBA expectations also keep the major underpinned.

USD/JPY holds gains near 158.00 after Japan's weak Household Spending data

USD/JPY clings to gains around 158.00 after data showed on Friday that Japan's Household Spending fell for the ninth straight month, undermining the Japanese Yen. Meanwhile, the US Dollar remains depressed as the overnight fall in US bond yields counters a hawkish Fed and geopolitical uncertainties, could cap any downside in the pair.

Gold remains range-bound below $4,200

Gold has given up some ground after an initial bullish attempt to reach weekly highs, returning to below the $4,200 mark per troy ounce on Friday. The US Dollar’s strong upside momentum, combined with rising US Treasury yields across the curve, seems to keep further gains in the yellow metal under scrutiny.

Has Bitcoin really escaped the macro forces it was built to fight?

Over 17 years ago, Satoshi Nakamoto designed Bitcoin (BTC) on the back of a global financial crisis as an alternative to the global monetary system outside the control of central banks, governments and traditional intermediaries. This raises a key question: has Bitcoin really become independent of the macroeconomic forces it was built to challenge?

The Euro is not the sick man of Europe. France's bond market is

EUR/USD remains under pressure, near the 17-month low of 1.1161 reached on Monday. The pair has lost more than 7% since its yearly peak, as concerns over France's public finances increasingly weigh on the single currency. But behind the weakness of the Euro (EUR), the problem does not necessarily lie with the European economy as a whole.