Euro bounces as Italy targets lower deficit ratio

EUR/USD climbs as Italy reviews debt/GDP ratio

EUR/USD is higher this morning as news filters through that the Italy ruling coalition lowered the terms for its debt to GDP ratio. Previously, Deputy PM Di Maio had suggested the debt to GDP ratio would be about 2.8% but recently the target had been scaled back to 1.9%. The news caused the Italy/Germany 10-year bond spreads to narrow to 238 bps from 245 bps yesterday. German 10-year bund yields continue to tick higher, with the yield at 0.53%, the highest since May 22, according to data compiled by Bloomberg. The Euro was also firmer, trading 0.07% higher at 1.1755.

The move coincided with a US dollar that could not capitalize of yesterday’s gains, with the DXY index, the US dollar measured against a basket of six major currencies, flat on the day. However, the 1.18 level remains a major stumbling block for EUR/USD, having had an attempt above yesterday to 1.1815, which was promptly rejected.

 

EUR/USD Daily Chart

Source: Oanda fxTrade

 

Oil capped by weaker EM demand outlook

Earlier today the EIA commented that the recent decline in emerging market currencies could lead to lower oil demand growth. There were reports earlier this week that Indian oil companies were scaling back their oil purchases due to higher prices and a weaker local currency. However, the supply outlook with Iran sanctions on the horizon still suggests that any price dips will be short-lived. Oil prices are flat on the day, with the WTI steady at 72.490 having failed to cross the 73.0 threshold yesterday.

 

OANDA Trading Asia markets update

 

ECB speeches could dent EUR’s rally

There is not much on the data front that could derail the Euro’s rally today, though we do have a couple of speeches from ECB’s Praet and Coeure that could throw a spanner in the works. Of the two, Praet probably has the most dovish leanings among the ECB members. The rest of the data calendar is populated with second-tier data with the US Redbook index, S&P/Case Shiller house prices and the Richmond Fed index the only events to grab the attention.

 

You can view the full MarketPulse calendar at https://www.marketpulse.com/economic-events/

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