EUR/USD: Falling Italy-German yield spread is EUR-positive, focus on US ADP data

The EUR/USD could remain bid on narrowing Italy-Germany yield spread.
The escalating trade tensions may boost haven demand for the US dollar.
Better-than-expected US ADP and non-manufacturing PMI could put a bid under the greenback.

Omkar Godbole FXStreet Contributor

The EUR/USD produced a big green candle on Wednesday, possibly due to a sharp drop in the Italy-Germany bond yield spread.

At press time, the common currency is trading at 1.1635, having clocked a high of 1.1659 in early Asia.

The spread between the 10-year Italian government bond yield and the German 10-year bond yield dropped sharply in the last two days from 296 basis points (bps) to 268 bps, on EU friendly budget remarks.

Moreover, the feeling spread indicates that the market pessimism over the Italian budget is receding. As a result, the common currency could remain bid today.

However, if the European equities drop in response to escalating US-China trade tensions, then the EUR/USD may come under pressure. Further, the USD may pick up a bid if the US ISM non-manufacturing number and the ADP employment report paints a rosy picture of the US economy.

EUR/USD Technical Levels

Resistance: 1.1656 (61.8% Fib R of the pullback), 1.17 (psychological hurdle), 1.1733 (Aug. 28 high)

Support: 1.1629 (session low), 1.1585 (Aug. 31 low support on the hourly chart), 1.1530 (Sep. 4 low)

Italy-German yield spread

Author

Omkar Godbole

FXStreet Contributor

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

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