The positive sentiment in risk appetite underpins the euro on Wednesday. Yesterday, EURUSD was rejected from daily highs still below 1.15 and slipped under 1.1360. Now, the pair is trading positive on the day but still struggles to regain the 1.14 figure which confirms a cautious tone amid the Italy’s budget woes.
The reports that Italy may make cuts to the amounts on citizens' income have supported the single currency earlier in the day. But the European Commission will anyway disapprove of the revised budget. So the risks from this front persist. Moreover, the dollar looks stable after the recent rally, which caps the euro’s upside potential as well. Meanwhile, Italy's statistics bureau cut its 2018 GDP growth forecast to 1.1% from 1.4%. It’s not surprising but doesn’t bode well for the European currency either.
In the short-term, the bearish risks for the EURUSD pair persist. Further Italy-German yields spread widening could fuel another sell-off in the euro. In a wider picture, traders will likely continue to sell the currency on rallies until the Italian dust settles, and it may take a long time. As long as the pair is trading below 1.15, the bears will remain in control.