Synopsis: Despite softening US yields providing some relief to EUR/USD, pressures from the Italian bond market are preventing a more pronounced rally. The expanding spread between 10-year BTP and Bund is an emerging concern, with discussions at the ECB level about its potential implications. Meanwhile, developments in the Middle East have also impacted EUR/CHF, resulting in a notable decline. ING's one-month target for EUR/USD is set at 1.04.

Detailed Analysis:

• Current State of EUR/USD: The pair is experiencing a temporary respite, primarily driven by easing US yields. Notably, its potential to rally further is being hindered by emerging strains in the Italian bond market.

• Italian Bond Market Concerns: The widening gap in the 10-year BTP-Bund spread, currently at +207bp, is raising eyebrows. Even within the European Central Bank (ECB), there's active debate regarding what spread levels might be deemed alarming, with figures like 250bp being discussed.

• Impact on EUR/CHF: The escalating situation in the Middle East, combined with the aforementioned factors, has negatively affected EUR/CHF. The currency pair has seen a decline of around 0.6% in the previous session.

• One-Month Target: Despite these prevailing challenges, ING maintains its one-month target for EUR/USD at 1.04.

Conclusion: The Italian bond market's increasing pressures, coupled with ongoing geopolitical developments in the Middle East, are curbing EUR/USD's potential to climb. Even with the slight reprieve brought about by subsiding US yields, ING's outlook remains cautious, setting their short-term target for the pair at 1.04.