EUR/USD Price Forecast – EUR/USD Trades Flat Post Rebounding From Monthly Lows Hit During Previous Session

The EUR/USD pair yesterday saw a sharp drop during the American session and printed a fresh low at 1.1359. The US dollar strengthened across the board during the last hours, particularly versus the yen and European currencies as equity prices in Wall Street consolidate losses which was preceded by equity rout across global market initiated post Wall Street’s decline on Monday owing to tech stock’s bearish decline. Earlier yesterday, the pair peaked at 1.1472, the highest since November 7 but then pulled back and lost strength, making a correction that saw the pair lose more than a 100 pips. Overall yesterday risk-off sentiment dominated the financial boards with the greenback standing victorious not just against the common currency but also against most of its major rivals. As of writing this article, the EURUSD pair has rebounded from monthly lows and is trading near flat 1.1378 up by 0.07% on the day.

EU’s Response To Italian Budget Remains Main Focus of Today

The fall cannot just be blamed on risk-off sentiment alone as EURO had its fair share of weakness. The initial catalyst of EUR’s decline was a new bout of tensions between the EU Commission and Italy over the 2019 budget. The country refuses to reduce the planned deficit of 2.4% in its budget, and even further, deputy Prime Minister Salvini, menaced to veto the bloc’s next seven-year budget if the EU Commission insists on sanctions. The verbal battle escalated ahead of the EU´s response to Italian’s challenge scheduled to release today. The common currency was also affected by comments from ECB’s Weidmann, who said that policy normalization will take several years. The EUR/USD is on the defensive ahead of the European Union’s official response to Italy’s draft budget as the Italy-German yield differential hit 5.5-year high at 327 points during yesterday’s market hours, a level last seen on April 4, 2013.

This has added great level of bearish pressure on common currency with looming threat of sanctions on Italian government from EU especially when Italian Economy Minister Giovanni Tria has been accusing the EU of giving more leeway to France when budget matters are concerned and has pointed out that Italy’s “primary balance”, excluding debt-servicing costs, has been in surplus for almost 20 years. Italy stresses that expansionary measures are needed to head off an economic slowdown affecting the whole of Europe. The EU’s response today could add more bearish influence to EURO if the outcome is against Italy as it could see political tensions reach new highs. On the flip side the yield differential, however, may drop sharply, lifting the EUR back above the yesterday’s high of 1.1472 if the EU softens its stance. For today’s macro data release, European calendar remains silent while US market will see release of existing home sales data and core durable goods order data along with weekly crude oil inventory data.