FxWirePro: EUR/JPY recovery capped at 55-EMA, widening Italy-German yield spread to prompt further declines

EUR/JPY chart on Trading View used for analysis

• Fitch downgraded Italy's debt outlook to negative on Friday, citing concerns about the government's "new and untested nature" and it promises to hike spending.
   
• Italy-German (DE) 10-year yield spread rose to fresh 5-year highs after the Fitch downgrade dragging EUR lower.
   
• EUR/JPY dived on Friday, to close below 50-DMA support at 129.10.
   
• Currently, the pair is flat-lined 128.75, but could see weakness if Italy-DE yield differential  widens further.
   
• Technical indicators are turning bearish. Minor recovery attempts capped at 55-EMA.
   
• 5-DMA has turned, Stochs are on verge on bearish rollover from overbought and RSI is biased lower.
   
• Break below 21-EMA eyes 20-DMA at 128.02. Further weakness likely on break below.
   
• On the flipside, breakout at 5-DMA could see further upside. Bearish invalidation only above 200-DMA.

Support levels - 128.70 (21-EMA), 128.02 (20-DMA), 127.15 (June 28 low)

Resistance levels - 128.97 (55-EMA), 129.60 (nearly converged 5-DMA and 110-EMA), 131.25 (200-DMA)

Recommendation: Good to go short on upticks, SL: 129, TP: 128/ 127.15/ 126.65

FxWirePro Currency Strength Index: FxWirePro's Hourly EUR Spot Index was at -5.92899 (Neutral), while Hourly JPY Spot Index was at 42.3437 (Neutral) at 0545 GMT. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex.