Price sits in between the two key hourly moving averages
The pair is trading higher on the day as the dollar selling continues into the session after a dramatic 180º turn for the greenback in overnight trading. The pair also breached the 100-hour MA (red line) @ 1.1499 earlier and now this is where things start to get interesting for the pair.
The backdrop of Italy won't go away any time soon so that will continue to weigh on the single currency as the month carries on but you can't ignore what the charts are saying too. I can't emphasise that enough at times.
The key handle for bias in the pair in my view is the 1.1500 handle. As long as price continues to stick around it, it's hard for sellers to build on further conviction lower. Yesterday's price action showed that buyers aren't ready to give up their position just yet after the consolidation period seen so far since Thursday last week.
If price holds below the 200-hour MA @ 1.1532, there is still a case to be made for further downside in the pair as long as Italy's budget worries continue to weigh on the euro. But right now, the dollar half of the equation is the more dominant one and that makes things a little bit more tricky.
The greenback's momentum rides a lot on risk sentiment and that of rising Treasury yields. The latter appears to be taking a bit of a breather with 10-year yields sitting comfortably around 3.20% to 3.25%. The lack of a further breakout could allow equities some breathing room and in turn stymie the dollar's advance.
That's the fundamental side of the equation. As for the technical side, the trade now would be to watch for the near-term direction and which side it breaks. I'd still argue that upside in the pair looks limited with the Italian situation still hanging over the euro, but you can't rule out potentially strong breaks against the dollar especially when positioning is still a little stretched.
