EUR/USD: Downside exposed as Italy yield spreads spike, US-DE spreads continue to rise

For the EUR, the path of least resistance is on the downside as various yield spreads continue to widen in the EUR-negative manner.
The Italy-German 10-year yield differential widened to fresh highs since 2013 and looks set to rise even further on the EUR-Rome standoff.
The US-German yield differential is rising to new multi-decade highs each passing day.

Omkar Godbole FXStreet Contributor

The EUR/USD dropped to 1.1449 yesterday - the lowest level since Oct. 9 - and looks set to drop further to 1.14 as various yield spreads are rising in the EUR-negative manner.

For instance, the spread between the 10-year Italian government bond yield and its German counterpart rose to 3.25 percent yesterday, the highest level since 2013 and could rise further to fresh five year highs today as the European Union (EU) is not happy with Italy's planned budget deficit. The EU has reportedly called the budget plan as an 'unprecedented' deviation of the bloc's budget rules.

Further, the two-year US-German yield differential rose to a fresh multi-decade high of 353 basis points yesterday and looks set to rise further as the Fed minutes released earlier this week revealed a growing consensus among the officials on the need for above-neutral rates.

And last but not the least, the technicals are biased bearish: 5-,10-, and 21-day EMAs are trending south, the 14-day RSI is bearish below 50.00 and the MACD has produced a bearish crossover. All-in-all, the support t 1.1432 could be breached soon.

Technical Levels

Resistance: 1.1463 (Oct. 4 low), 1.1493 (5-day EMA), 1.1519 (10-day EMA)

Support: 1.1432 (Oct. 9 low), 1.1422 (76.4% Fib R of 1.131/1.1815), 1.14 (psychological support)

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 edges higher as hot CPI inflation and hawkish RBA lift rate hike bets

The AUD/USD pair gathers strength to near 0.7035 during the Asian trading hours on Friday. The Australian Dollar edges higher against the US Dollar as hotter Australian CPI inflation data has bolstered expectations of Reserve Bank of Australia rate hikes.

USD/JPY meets support near 157.00

USD/JPY retreats for the third consecutive day on Friday, revisiting the 157.00 region before attempting some recovery as investors continue to assess the latest BoJ meeting, where the central bank left rates unchanged, as widely anticipated.

Gold sinks to fresh yearly lows despite risk-off mood as Fed rate hike bets weigh

Gold slips to fresh year-to-date lows on Friday. The metal struggles despite a risk-off mood across markets, as expectations of further Federal Reserve (Fed) interest rate hikes continue to dominate price action, leaving Gold on track to end the month in negative territory.

Ripple Price Forecast: XRP bulls defend $1.20 as sell-side pressure triggers liquidations

Ripple (XRP) trades around $1.25 on Friday, rising from a short-term support level established at $1.20. This minor upward correction follows a sharp sell-off, triggered amid reports of a hack attack on the Binance exchange that impacted approximately $6.3 billion. The attack drove the broader crypto market on edge, as Binance suspended both deposits and withdrawals to contain the situation.

BoJ recap: A pause for now... but Japan has entered a new inflation phase

The Bank of Japan left its short-term policy rate unchanged at 1.25% but delivered a distinctly hawkish message on the risk of an inflation overshoot. The decision passed by 8-1, with board member Takata dissenting in favour of an increase to 1.5%, while Governor Kazuo Ueda stressed that the Bank would continue adjusting policy as needed.

The 2% inflation target came from a throwaway remark. It now moves trillions

The Federal Reserve's 2% inflation goal grew out of an off-the-cuff remark by a New Zealand politician in 1988. Bond investors still price long-term US debt as if 2% holds, so a change in how the Fed measures inflation would move markets.