EUR/USD's rally off August's low came under pressure from Italy's budget struggles today, but longs are likely to hang tough for now. BTP yields surged sharply higher, which helped sink EUR/USD earlier.
Weight from Italian budget uncertainty is being compounded by a big upside surprise to August U.S. durable goods data, which lifted U.S. Treasury yields off their lows and sent the greenback broadly higher.
Those factors have EUR/USD threatening 1.1650/65 support, where the 21-DMA and September 19 low sit.
A break lower there could bring key support in the 1.1510/30 zone into play.
EUR/USD bulls do have some backing though.
Since Draghi spoke on Monday, market perception of a more hawkish ECB is taking hold.
Prices for German short-term interest rate futures have held close to recent lows and yields have been buoyed.
Today's German September HICP was a big upside surprise, further underpinning short-term rates and Bund yields.
EUR/USD bulls are likely to hold their views as long as structural support in the 1.1510/30 zone holds.
A break below that zone likely sees a return to 2018's low.
chart: Click here