EUR/USD Forecast: Trapped in a triangle amid Trump's tirades, Italy's issues

Holiday-goers in some of Italy's beaches have been unable to rest and so have EUR/USD traders.  Shirtless deputy PM Matteo Salvini has paid them a visit – kicking off his election campaign with selfies while his fellow politicians are scrambling to salvage the government and as Italian bonds are selling off.

It remains unclear if the citizens of the euro zone's third-largest economy will go to the polls. The 5-Star Movement – coalition partners of Salvini's Lega party and opposition MPs, may team up to block the dissolution of parliament. However, they may need to find common ground and perhaps form a new government – no easy task in Italy's fractured political scene.

The euro has suffered from political uncertainty in the highly-indebted country. Ahead of the elections, Salvini may promise to break the EU's budget rules – and so may his rivals. The common currency suffered in late 2018 when Rome and Brussels clashed. 

And while the euro may struggle with European politics, the dollar may retreat on ongoing tensions between the US and China. President Donald Trump has said that China "badly wants a deal" as companies are flocking out of the country. The harsh rhetoric has unnerved markets. Moreover, he hinted that talks between the world's largest economies – due to resume in September – may be called off. 

The greenback has been on the back foot against several currencies as rising trade tensions have pushed money out of stocks and into bonds. In turn, the drop in US Treasury yields implies an imminent rate cut from the Fed. China has further devalued its yuan earlier today – yet set the exchange rate above expectations. Beijing's perceived restraint has helped stabilize markets. Nevertheless, without a long-term resolution, global markets may continue struggling.

With no significant economic releases on the agenda today, further developments in Italy and around trade will likely dominate EUR/USD moves. Later this week, German GDP, US inflation, and US retail sales will have their say in moving the currency pair.

EUR/USD Technical Analysis

EUR/USD is trading in a narrowing triangle or wedge. Technical analysis textbooks suggest this limited trading range serves as a  "pressure cooker", narrowing the range of movement until the price has nowhere to go except to move substantially – even violently – in one direction.

And looking at today's EUR/USD chart, what direction will the pair take?

Other indicators are mixed. Momentum and the Relative Strength Index are stable. The pair trades above the 50 and 100 Simple Moving Averages but below the 200 SMA. 

Resistance awaits at 1.1225 which has held EUR/USD down on Friday. 1.1250 – August's high point follows it. Next, we find 1.1285, which was a triple-top in July. 1.1325 and 1.1390 are next.

Support awaits at 1.1165, which was a swing low in early August. Next, we find 1.1135, which provided support in late July. 1.110 and 1.1101 are next – both provided support earlier in July. The 2019 trough of 1.1027 is the last line to watch.