EUR/USD: 1.1422 (76.4% Fib) back in focus, Eurogroup's Centeno confident of Italy budget deal

• The focus is back on 1.1422 - 76.4% Fib R of Aug-Sept rally, as the EUR's drop to 1.1456 yesterday negated Friday's bullish outside-day.
• The EU's Centeno confident of a budget deal between Rome and EU, but the EUR will likely pick up a bid only if the Italy-German yield spread narrows sharply.

The EUR/USD ended on a weaker note at 1.1464 yesterday, reinforcing the bearish view put forward by the downward sloping 5-day and 10-day exponential moving averages (EMAs).

Further, the pair's drop from the intraday high of 1.1550 to 1.1464 yesterday negated Friday's bullish outside-day candle.

As a result, the focus is back on the key support of 1.1422 - which is the 76.4 percent Fibonacci retracement of the rally from 1.1301 to 1.1815.

The bearish technical setup will likely play out today as Italy's populist government is not backing away from its plan to hike public spending despite stinging criticism by the EU.

However, if the EU strikes a softer tone and/or Italy softens its stance, then the spread between the 10-year Italy and German bonds will likely drop sharply below 300 basis points, lifting the EUR higher. Eurogroup head Mario Centeno on Monday told Reuters that the latest messages from Rome and the European Commission over Italy's 2019 budget are "very positive" and an agreement could be reached on the budget blueprint.

That said, only a daily close above yesterday's high of 1.1550 would put the bulls in a commanding position.

At press time, the EUR/USD is trading at 1.1455.

EUR/USD Technical Levels

Resistance: 1.1483 (5-day EMA), 1.1506 (10-day EMA), 1.1550 (previous day's high)

Support: 1.1422 (76.4% Fib R of 1.1301/1.1815), 1.14 (psychological support), 1.1301 (August low)