EUR/USD: No Signs of a Recovery, Correlations Stay Bearish

By analyzing the most correlated assets against the EUR/USD, it suggests that the outlook should remain negative early in the week. To start with, the market is not buying into Italy's pledge of respecting the 3% ceiling on their yet to be approved new budget, as seen by the widening of the premium against the German yields. Meanwhile, fears of contagion between Turkey and EU banks may still weight on the Euro, as the Turkish Lira approaches its most recent record low against the USD. On top of that, the risk sentiment has turned sour, with EM at the forefront. Last but not least, the yield spreads between Germany and the US in the long and short end are moving in favour of the latter again.