EUR/USD: Italian political uncertainty could cap gains

EUR/USD's upside could be capped around 1.1250 on Italian political uncertainty.
Italy-German yield spreads could rise sharply in EUR-bearish manner.
A below-forecast German data could push EUR/USD below key support at 1.1177.

Omkar Godbole FXStreet Contributor

EUR/USD has picked up a bid while heading into the London open, however, during the day ahead, the upside could be capped by Italian uncertainty.

The currency pair is currently trading at 1.1196, representing 0.15% gains on the day.

The common currency ran into offers around 1.1230 on Thursday and ended the day on a negative note at 1.1180, forming an inverted hammer, likely due to political tensions in Italy.

Salvini pulls the plug on the government

The leader of Italy's ruling League party and Deputy Prime Minister Matteo Salvini pulled the plug on government and said the only way forward was to hold fresh elections.

Salvini’s move reportedly prompted Prime Minister Giuseppe Conte to trigger a process that could lead to elections as early as October.

The heightened political uncertainty could lead to a sharp widening of the Italy-German yield spread in the EUR-negative manner. The 10-year yield differential spiked by 12 basis points yesterday.

As a result, EUR/USD may have a tough time extending gains above Tuesday's Doji candle's high of 1.1250.

The EUR may take a hit and drop below 1.1177, validating Thursday's bearish hammer if the German data, due at 06:00 GMT, shows a sharp slide in exports in June.

In the US session, the focus would shift to the US Producer Price Index. Also, the ratings agency Fitch will be reviewing the rating outlook for Italian sovereign debt in the US afternoon.

Technical Levels

EUR/USD

Overview
Today last price	1.1196
Today Daily Change	0.0016
Today Daily Change %	0.14
Today daily open	1.118

Trends
Daily SMA20	1.118
Daily SMA50	1.1239
Daily SMA100	1.1227
Daily SMA200	1.1298

Levels
Previous Daily High	1.1234
Previous Daily Low	1.1177
Previous Weekly High	1.1164
Previous Weekly Low	1.1027
Previous Monthly High	1.1373
Previous Monthly Low	1.106
Daily Fibonacci 38.2%	1.1198
Daily Fibonacci 61.8%	1.1212
Daily Pivot Point S1	1.116
Daily Pivot Point S2	1.114
Daily Pivot Point S3	1.1103
Daily Pivot Point R1	1.1217
Daily Pivot Point R2	1.1253
Daily Pivot Point R3	1.1273

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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