Talking Points:
- Both the Italian BTP 2- and 10-year yields have come off recent highs, but the Euro[1] rally has faded across the board - EUR/GBP[2], EUR/JPY[3], and EUR/USD[4] are at or near their opening price levels.
- US Dollar bid in recent days tied directly to concerns about the Italian budget; Fed rate hikes for the next 12-months are more dovish than they were a week ago, pre-September FOMC[5] meeting.
- Retail traders[6] remain net-long EUR/USD and GBP/USD[7] after the US Dollar's recent surge.
Looking for longer-term forecasts on the US Dollar? Check out the DailyFX Trading Guides[8].
The US Dollar (via the DXY[9] Index) is trading back higher once again, working on its sixth consecutive day to the topside as concerns over the Italian budget situation proliferate. Despite an earlier report that the populist Italian government's deficit spending plans were short-term in nature only - by next year, fiscal policy would be attuned to cutting the debt - the Euro has been unable to shake off fears that an 'Italeave' is possible eventuality.
Both the Italian BTP 2- and 10-year yields have come off recent highs just set yesterday, in the case of the latter the highest yield seen since early-2014. But Italian-German yield spreads remain at multi-year highs, suggesting that the risk that Italy poses hasn't gone away by any stretch of the imagination.
Look no further than the lack of a Euro rally in the wake of the marginally lower Italian bond yields as evidence that traders are hesistant to say that their fears have been
