EUR/USD: Focus on Italy-German yield spread

• Italy re-election, a referendum on Euro.
• The EUR could extend the decline if Italy-German yield spread widens to fresh multi-year highs.
• The EUR is oversold as per the 14-day relative strength index.

The EUR/USD pair fell to 1.1607 on Monday - the lowest level since November 2017 as the Italy-German yield spread rose to a 5.5-year high of 232 basis points.

Investors ditched Italian bonds, pushing the benchmark 10-year yield higher by a hefty 22 basis points on fears that fresh election would deliver a stronger mandate to Italy's eurosceptic parties. The country's would-be eurosceptic coalition government collapsed at the weekend, according to Reuters news and the fresh election is widely seen as a vote on EU membership.

The common currency may continue to lose altitude today if the Italian-German yield spread rises further in the EUR-negative manner.  

The moving averages (MAs) maintain the bearish stance - 5-day, 10-day, and 21-day MAs are sloping downwards. However, the relative strength index (RSI) shows oversold conditions.  So, a corrective rally could be seen, if the oversold RSI is backed by narrowing of Italy-German bond yield spread.

EUR/USD Technical Levels

FXStreet Chief Analyst Valeria Bednarik mentions 1.1605, 1.1580, and 1.1550 as key support levels. Meanwhile, resistance is seen at 1.1645, 1.1685, and 1.1720.