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EUR/USD Daily Price Forecast – EUR/USD Recovery Runs Out of Steam As Italian Budget News Weighs Down the Common Currency

Colin First

The Euro was under a lot of pressure this past week below the 1.1400 support level against the US Dollar. The EUR/USD pair declined sharply, tested the 1.1300 support area, and later started a correction. The pair started a decent upward move and traded above the 1.1350 and 1.1370 resistances, however momentum in favor of Euro is running out of steam over news of possible budget plans in Italian government.  News has hit market that Italy’s populist government is considering a ‘Marshall Plan’ of up to EUR 80 billion to revamp the country’s infrastructure after the Genoa bridge collapse. If implemented, the fiscal spending would put Italy on a collision course with the EU. Hence, the EUR may find it hard to register big gains today. As of writing this article, EURUSD pair is trading at 1.1426 down 0.11% on the day after hitting an intra-day high of 1.1440 in early Asian market hours.

Italian Budget News Signals Clash With EU & Italy-German 10-year Spread Widens Dragging EURO On Bear’s Path In Global Market

The news report that China and the US would restart their trade negotiations kept benefiting risk sentiment. The risk-on mood gave investors a reason to continue taking some profits off the US Dollar long positions and prompted some additional short-covering move around the EUR/USD pair. The recovery move from over 13-month lows extended beyond the 1.1400 handle and lifted the pair to a fresh weekly high level of 1.1445 on Friday. The uptick, however, lacked any follow-through as news of Italian budget plans has put a dent in momentum resulting in slow and steady downward movement since trading session began for the day. Concerns over a potential clash with the EU was evident from widening Italy-German 10-year yield spread and might now contribute towards keeping a lid on any meaningful up-move for the major.

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Meanwhile, today’s thin economic docket, featuring the release of Euro-zone producer price index (PPI) and Bundesbank’s monthly report seems unlikely to provide any meaningful impetus. Hence, any subsequent up-move, back closer to the key 1.1500 psychological mark now seems elusive. From a technical perspective, the recent bounce might still be categorized as corrective in nature from near-term oversold conditions and already seems to have lost steam. A sustained weakness below the 1.1400 handle would reaffirm the expectations and turn the pair vulnerable to accelerate the slide back towards 1.1340 horizontal support en-route the 1.1300 round figure mark. On the flip side, a fresh leg of up-move is likely to confront stiff resistance near the 1.1500-10 price levels.

This article was originally posted on FX Empire

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