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EUR/USD rises to session high as Italian bonds cheer Moody’s rating review

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Italy’s 10-year bond yields are down 10 bps to start the week


EUR/USD touches a high of 1.1536 on the session as the euro gains some poise on the back of a much calmer backdrop seen in Italian assets to begin the new week. Late on Friday, Moody’s decided to cut Italy’s credit rating to one grade above junk status but the key was that they revised the outlook to stable. That means the likelihood of a further downgrade to junk status is off the table for now and that’s what investors are cheering about.
Italy’s 10-year bond yields are down by 10 bps currently and the yields spread to Germany’s bond yields have tightened by 15 bps to 291 bps as we begin the week:

As for EUR/USD, price now looks to make a break of the 100-hour MA @ 1.1518 but is encountering minor resistance from Friday’s high @ 1.1535. There’s also further resistance from the 200-hour MA @ 1.1540.
A break of the 100-hour MA will see near-term price bias turn undefined and a further break of the 200-hour MA will see it turn more bullish. Despite Moody’s decision on Friday, there is still the S&P Global Ratings’ review to come this Friday so risks related to Italy isn’t all-clear just yet.
There’s also the continued risk the EU will reject Italy’s budget proposal but it remains to be seen if Italy will revise their submission despite that. The debacle here is set to rage on for quite a while more and that will add some downside risks for the euro in the near-term at least.
That said, I can’t imagine rallies moving too far, too fast from hereon but if S&P comes up with a similar decision to Moody’s, that will at least provide further relief for Italian assets and the euro.

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