EUR/USD: Recovery rally to double bottom neckline likely if Italy-German spread drops below 300 bps

EUR/USD's pullback from 1.1622 may have ended at 1.1432 and the recovery rally could gather pace today if the Italy-German yield spread drops below 300 basis points.
A double bottom breakout would be confirmed only above 1.1622.

Omkar Godbole FXStreet Contributor

The EUR/USD pair created a bullish outside-day at the key support of 1.1432 on Friday, signaling the pullback from the Oct. 16 high of 1.1622 has likely ended.

However, a double bottom bullish reversal would be confirmed only after the pair has found acceptance above 1.1622. Further, the prospects of a rally to 1.1622 would rise if the pair closes today above 1.1535 (high of Friday's bullish outside-day candle). So, will the pair rally close above 1.1535 today?

It all depends on the action in the Italy-German bond yield spread.

On Friday, the ratings agency Moody's downgraded Italy's credit rank from Baa2 to Baa3 but maintained stable outlook. The investors were worried that Moody's may cut the nation below investment grade.

Essentially, Moody's decision fell short of investors' worst expectations, hence, Italian markets may witness a relief rally today. The spread between the 10-year Italy and German yields will likely drop below 300 basis points (bps), lifting the EUR/USD higher.

Should the spread remain above 300 bps, then the EUR/USD will likely struggle to move past 1.1535. At press time, the spread is seen at 315 basis points and the pair is trading at 1.1516.

EUR/USD Technical Levels

Resistance: 1.1535 (Friday's high), 1.1585 (50-day MA), 1.1622 (Oct. 16 high)

Support: 1.1463 (Oct. 4 low), 1.1432 (double bottom), 1.14 (psychologial level)

Author

Omkar Godbole

FXStreet Contributor

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

EUR/USD struggles to regain momentum in the low1.1600s

EUR/USD is giving some signs of life in the aftermath of two severe days of losses on Wednesday, reclaiming the 1.1600 hurdle and above on the back of the resurgence of a mild selling bias around the US Dollar. Moving forward, the usual US weekly Claims will take centre stage on Thursday ahead of Friday’s crucial NFP data.

GBP/USD appears bid around 1.3370

GBP/USD reverses part of its recent multi-day decline, gathering some balance and managing to reach the 1.3400 region, where some initial resistance seems to have turned up. Cable’s uptick comes in response to some loss of momentum in the Greenback despite the geopolitical scenario remaining fragile.

Gold recovers modestly despite intensifying Middle East crisis

Gold keeps its daily gains well in place, although a break above the $5,200 mark per troy ounce still remains elusive on Wednesday. The yellow metal’s rebound comes in response to the persistent flight-to-safety amid intense geopolitical tensions in the Middle East and the bearish performance of the US Dollar.

XRP rises alongside peers as ETFs attract inflows

Ripple (XRP) is gaining upside momentum, trading above $1.40 at the time of writing on Wednesday. The remittance token is rising in tandem with major crypto assets, including Bitcoin (BTC), which has crossed above the pivotal $70,000 level, and Ethereum (ETH), which is holding above $2,000.

First Venezuela, now Iran: The US-China energy war escalates

At first glance, the latest escalation involving the United States with both Iran and Venezuela looks like another chapter in a long-running geopolitical story. But viewed through a broader strategic lens, something else may be unfolding: Energy.

Bittensor extends recovery despite retail demand slump

Bittensor, a leading Artificial Intelligence token, is aging up above $190 at the time of writing on Wednesday. Steady price increases characterise the broader crypto market, with Bitcoin holding above $71,000 and Ethereum above $2,000.