EURUSD Hits Lowest in Six Months As Italy-German Yield Spread Widens

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, 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. 

EURUSD Under Pressure

The momentum of pair currently seems to be on downtrend in short term time frame. The decline in euro could also be viewed as result of strengthening Dollar as a result of global growth fears and currency crises in Turkey and Argentina. In the week ahead these factors may be material in deciding the currency’s continued trajectory. The Euro is poised to challenge critical chart support having dropped to the lowest level in six months against the US Dollar. The decade-long down trend has resumed with May on pace to deliver the steepest monthly decline since November 2015.

Sellers are now poised to challenge the 1.1442-1.16 area, a former resistance threshold marking the top of the range containing prices from early March 2015 through mid-July 2017 that has now been recast as support. Breaching this barrier would open the door for the next leg of the long-term down move. Looking at daily chart a close back above support-turned-resistance in the 1.1713-32 zones – a barrier reinforced by a falling trend line set from mid-April – exposes the inflection point at 1.1827 once again.

Looking at Economic Calendar for the week, the main impact news in focus for Euro zone is inflation data to be released later this week, while in US markets the focus is on non-farm payroll data. The pair is currently trading well inside 1.16 price handle at 1.1628 and is expected to remain well inside 1.16 price handle during today’s Asian market hours. Expected support and resistance for the pair during today session are at 1.1605 / 1.1580 / 1.550 and 1.1645 / 1.1685 / 1.1720 respectively.