Italian job makes EUR/USD ignore oversold conditions and dive deeper

• The EUR/USD is suffering another down-day, reaching the lowest levels in five months. 
• High US yields support the US Dollar while concerns about Italian debt weigh on the Euro.
• The pair is in oversold conditions but continues falling anyway.

The EUR/USD started off Friday on stable ground, but the American traders took it to test once again. This pattern is seen in many of the recent US sessions: a sudden strength in the US Dollar regardless of the latest moves in US bond yields. Yields remain elevated around 3.09%, but off the highs of 3.13%. The greenback grinds higher anyway.

Thursday’s US economic indicators were OK, with a beat on the Philly Fed Manufacturing Index that came out at 34.4 points while weekly Jobless Claims disappointed with 222,000. In both the euro-zone and the US, there were no substantial economic releases.

Politics provide headlines. Members of the League and the 5-Star Movement published their program for a government which includes hefty handouts and tax cuts. The populist moves will result in higher debt in a country that already endured a debt-to-GDP ratio of 132%. Earlier in the week, a debt write-off worth €250 billion and flirtations with a euro-exit or “Italeave” were thrown in the air, but those were removed from the final agreement. The identity of the next Prime Minister has yet to be decided.

EUR/USD Technical Analysis – Oversold. So?

The RSI is around 27, pushing deeper into oversold territory. The dive indicates a bounce back as the pair is over-extended. These pullbacks or bouts of stability are limited to certain hours of the day. Momentum remains firmly to the downside, and the pair is getting further away from the 50-day Simple Moving Average (around 1.2170) and the 200-day Simple Moving Average (above 1.2000).

Below current levels, the December 2017 lows of 1.1720 serve as the next level of support. 1.1695 which capped the pair in November is the next in line to watch. Substantial support beyond this line is only around 1.1550.

The May 9th low of 1.1822 switches positions to resistance. Higher, 1.1915 was the January low, and it is followed by the round 1.2000 level that towers above.

More: EUR/USD faces fierce resistance, downside more attractive — Confluence Detector