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EURUSD found a bid in late New York trade today rising well above the 1.0600 level as the pair continued to find support at the 1.0550 zone. The EUR/USD has now held that ground for more than two weeks but the next 72 hours could prove to be challenging to the pair as it faces two keys tests.
Of course tomorrow the market will be glued to US Non-Farm Payrolls report and if it is as good as we think it will be the euro should sell off strongly in the wake of good US job gains. The market will only become more convinced that the Fed rate hike cycle is now upon us.
Yet even if the NFP prove to be a snoozer, the Italian referendum over the weekend could prove to be the death knell of the single currency. We think than In the near term, the Italian referendum on Senate reform scheduled for December 4th poses the greatest near term risk for EUR/USD. No polls are permitted 15 days ahead of the vote and the last survey showed the No vote firmly ahead. The referendum is aimed at streamlining Italy’s government decisions by reducing the role of the Senate and regional governments. But is now seen as just another policy prescription rammed down the throat of populace by the “elite”. Prime Minister Renzi pledged to quit if the vote is rejected which would create another political crisis in Italy especially as the vote has been viewed as a referendum on EU membership. Italy’s political uncertainty should deter investors from buying euros, because this is no Greece. It’s the third-largest economy in the Eurozone and that means wrenching body blow to the whole EU project.
A break of 1.0550 would be critical for the pair as it would suggest that it could dip below the key 1.0500 support and open the way for ultimate move towards parity.