EUR/USD: Focus on Italy-German yield spread
- Italy re-election, a referendum on Euro.
- The EUR could extend the decline if Italy-German yield spread widens to fresh multi-year highs.
- The EUR is oversold as per the 14-day relative strength index.
The EUR/USD pair fell to 1.1607 on Monday - the lowest level since November 2017 as the Italy-German yield spread rose to a 5.5-year high of 232 basis points.
Investors ditched Italian bonds, pushing the benchmark 10-year yield higher by a hefty 22 basis points on fears that fresh election would deliver a stronger mandate to Italy's eurosceptic parties. The country's would-be eurosceptic coalition government collapsed at the weekend, according to Reuters news and the fresh election is widely seen as a vote on EU membership.
The common currency may continue to lose altitude today if the Italian-German yield spread rises further in the EUR-negative manner.
The moving averages (MAs) maintain the bearish stance - 5-day, 10-day, and 21-day MAs are sloping downwards. However, the relative strength index (RSI) shows oversold conditions. So, a corrective rally could be seen, if the oversold RSI is backed by narrowing of Italy-German bond yield spread.
EUR/USD Technical Levels
FXStreet Chief Analyst Valeria Bednarik mentions 1.1605, 1.1580, and 1.1550 as key support levels. Meanwhile, resistance is seen at 1.1645, 1.1685, and 1.1720.
Author
Omkar Godbole
FXStreet Contributor
Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.
