After yesterday’s decline, EURUSD tried to stage a recovery but failed to attract buyers and resumed the downside move even as the dollar demand seems to be losing steam following the recent rally. The pair was rejected from the 1.13 handle and refreshed two-week lows below 1.1270.
Despite the talks of Trump’s auto tariffs were denied today, the speculations were enough to fuel concerns about escalation of EU-US trade issues. Anyway, Italy remains the key bearish factor for the single currency as, according to the European officials, Italy’s budget deficit target must be closer to 2% for the EU to consider approval of the plan, and a cut of 0.2% is not enough to prevent opening the so-called EDP measures against Italy.
Should the threat of negative developments on this front rise further, the euro could revisit this year’s lows marginally above the 1.12 barrier. In this context, traders will closely monitor bond yields dynamics in the region.
Another risk factor for the EURUSD pair is the potential USD rally. Trump’s hostile rhetoric coupled with potentially strong US GDP data and falling oil prices could fuel the greenback demand across the board. In the short term, Fed Powell’s testament will be in focus. A neutral or cautious tone could put the dollar under some pressure and cap the selling pressure on the euro.