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EUR/USD Price Forecast – EUR/USD Trades Range Bound As Italy – German Bond Spread Widens Capping Gains

By:
Colin First
Updated: Nov 20, 2018, 06:40 UTC

Broad-based USD weakness helped pair climb higher but Italy - German bond yield gap widened capping euro's gains.

EURUSD Tuesday

The greenback was the weakest currency across the FX board yesterday weighed by last week’s comments from Fed officials, dragging yields to their lower for this November. With no relevant clues from the macroeconomic calendar and some relief in the Brexit front, majors were confined to tight intra-day ranges. The EUR/USD pair traded as high as 1.1464 before easing some, after a soft start to the day dominated by risk-aversion on headlines indicating mounting tensions between the US and China. Dollar’s weakness seems directly correlated with weakening T-yields and falling equities, with equities continuing to decline in defiance on holiday expectations dragged by the continued rout in tech-related shares.  While EURO gained in broad market owing to US Greenback’s weakness, the gains were capped despite the pair hitting new 12- day highs and breaching resistance at 1.1450 handle as Italian Economy Minister Tria told reporters that the bond yield spread had no influence on the intention of the deficit target added that Italy’s plan would not change.

Investors Continue To Await EU’s Reply To Italian Budget

Following these comments, the gap between 10-year Italian and German bond yield rose to its highest level in more than three weeks at 320 bps to make it difficult for the shared currency to preserve its upwards momentum. Meanwhile another bearish indication popped up in form of low impact macro data from European markets as the data published by the European Central Bank showed that the latest account surplus (seasonally adjusted) fell to €16.9 billion in September from €24.3 billion recorded in August. As of writing this article, the EUR/USD pair is trading flat near yesterday’s highs at 1.1448 down by 0.05% on the day.

While the gains may seem capped in immediate market investors and analysts now believe in possibility of EURO breaching 1.15 handle if German PPI data scheduled to release later today provides a bullish boost to EURO bulls. Both US and European markets are scheduled to see macro data updates that could change price flow. European markets will see German PPI data while US markets will see release of building permits and housing starts data. A better than expected macro data outcome in European markets will provide some positive influence to EURO bulls but the momentum could be cut short again today if USD regains momentum following US macro data release. Investors will also be on look out for the EU Commission’s response to the revised Italian budget as well. Expected support and resistance for the pair are at 1.1420, 1.1390, 1.1355 and 1.1460, 1.1500, 1.1535 respectively.

About the Author

Colin specializes in developing trading strategies and analyze financial instruments both technically and fundamentally. Colin holds a Bachelor of Engineering From Milwaukee University.

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