• Fed rate hike uncertainty keeps the USD bulls on the defensive.
• Italian budgetary concerns to keep a lid on any runaway rally.
The EUR/USD pair reversed an early dip to sub-1.1400 level and quickly recovered around 25-30 pips from daily lows to hit 1-1/2 week tops in the last hour.
The Fed Vice Chairman Richard Clarida offered some dovish comments on Friday, saying that interest rates are nearing a neutral rate, and triggered a broad-based US Dollar weakness.
Rate hike uncertainty, evident from a weaker tone around the US Treasury bond yields, kept the USD bulls on the defensive and was seen as one of the key factors helping the pair to build on last week's strong rebound from YTD lows, further beyond the 1.1400 handle.
The uptick, however, seemed lacking any strong follow-through as investors might be reluctant to place any aggressive bets ahead of a crucial week for the Italian budget, where the EU is expected to start the procedure to issue sanctions against the troubled country on Wednesday.
Meanwhile, the latest comments by Italy's Govt. undersecretary for the regions, Stefano Buffagni, saying that key points of draft budget will not change, raised prospects for a standoff and might keep a lid on any run-away rally for the major.
In absence of any major market moving economic releases, either from the Euro-zone or the US, the pair seems more likely to continue with its consolidative price action within a narrow trading range around the 1.1400 handle.
Technical levels to watch
On a sustained move beyond the 1.1425-30 immediate resistance, the pair is likely to aim towards reclaiming the key 1.1500 psychological mark with some intermediate hurdle near the 1.1460-65 region.
On the flip side, the 1.1385 level now seems to protect the immediate downside, which if broken might accelerate the slide further towards the 1.1320-15 region en-route the 1.1300 round figure mark.
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