EUR/USD Forecast: Ignoring Italy, capped by resistance, and fearing the Fed

Italians are known for being dramatic – yet exciting political developments have failed to move markets. Italian prime minister Giuseppe Conte has quit his post. Conte's move halted an attempt by Matteo Salvini – interior minister and the leader of La Lega – to force imminent early elections. The outgoing PM heavily criticized Salvini for his politics before tendering his resignation to President Sergio Mattarella.

The president now begins consultations about forming a new government – perhaps between the 5-Star Movement – currently in colation, and the Democratic Party – presently in opposition. Luigi di Maio's 5-Star and former PM Matteo Renzi's have clashed in the past – limiting the chances of forming an alliance – at least a long-lasting one. 

So far, investors have shrugged off the unfolding drama as politicians have focused on domestic issues and have refrained from criticizing the EU. When Rome and Brussels clashed over the euro zone's third-largest economy's budget deficit in late 2018, the common currency struggled.

The focus in Europe will soon shift to the largest economy – Germany. The locomotive of the euro-zone auctions a zero-coupon 30-year bond today – testing the market appetite for a safe-haven asset which promises no yield. Markit's preliminary Purchasing Managers' Indexes (PMIs) are due out on Thursday and another downfall in prospects for the continent's powerhouse is on the cards. The European Central Bank is watching the data closely.

See German PMI Preview: From bad to worse? EUR/USD is ready for another fall

On the other side of the Atlantic, the main event of the day is the release of the Federal Reserve's meeting minutes. The document is set to shed light on the July 31st decision to cut interest rates for the first time in over a decade – a move that was labeled as a "mid-cycle adjustment."

Markets will scrutinize the carefully-edited minutes and will try to see if the Fed is set to cut rates again in September or wait for more data. Two members voted against the decision to reduce rates, yet others may have wanted the bank to hint of more cuts.

See FOMC Minutes Preview: The Fed vs the markets

The release of the minutes serves as a warm-up towards the all-important speech by Fed Chair Jerome Powell on Friday. The central banker in which he is set to provide a fresh outlook – and set the ground for the September decision.

President Donald Trump has repeated his calls for the Fed to cut rates. One of the reasons for last month's cut was trade tension. On that front, the president said he is still not ready to do a deal with China. These latest comments have somewhat weighed on markets. However, the mood remains calm.

EUR/USD Technical Analysis

EUR/USD is capped by downtrend resistance, setting lower highs since late last week. Moreover, the world's most popular currency pair trades below the 50, 100, and 200 Simple Moving Averages on the four-hour chart. On the other hand, downside momentum is waning. 

Some support awaits at 1.1090 which was a low point last week and coincides with the daily low. It is followed by 1.1065 which was the trough on Tuesday. The next line is the all-important 2019 low of 1.1027. The next lines are 1.1000 and 1.0960.

Some resistance awaits at 1.1115 which was a high point earlier this week. It is followed by 1.1130 which provided support last week. The next is 1.1160 that held it down around the same time. 1.1195 and 1.1230 are next.