The euro at the moment is trading on the back of strong fundamentals and Italian uncertainty. While it has bounced back against the USD over the last few weeks due to USD weakness and a little support from German data, there is a sense of déjà vu for the Eurozone with regards to the latest news of political risk. The Eurozone seems unable to escape these sort of events, and once again the threat has come from Italy. Following on from the elections earlier in the year, which ironically passed by without a lot of reaction or concern from the market, the current Italian coalition is causing headaches for the market with the expectation that its first budget could blow through the EU’s rules limiting public deficits to 3% of GDP. So far, the selloff has only been in Italian debt and not the euro itself with Italian ten-year yields hitting four-year highs.
The next point of resistance is the July 31st highs of 1.1750 and support is sitting at 1.1660.