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Thomson Reuters
May 30 - 02:36 PM
EUR/USD - COMMENT-Italy Political Salve Temporary Relief For EUR/USD Ailment
First appeared on eFXplus on May 30 - 11:00 AM

The easing of Italian political tensions has provided relief for EUR/USD's troubles, but this may just be a temporary salve.
Though Italian-German yield spreads tightened sharply on talk of a renewed attempt to form a government and a successful Italian government bond auction, the growing support for Lega indicated in the latest SWG poll suggests Rome will be at odds with Brussels -- new vote or not.
Friction between the EU and Italy will prevent yield spreads from tightening significantly, maintaining market uncertainty over the euro and potentially complicating ECB policy normalization plans.
Those factors, combined with elevated net-long EUR positions and technicals suggesting downside risks remain, should limit EUR/USD's upside.
Good resistance is at 1.1830/60 and if broken would dent the recent slide.
Bigger resistance near 1.2000, where longer-term bears lie in wait, is then in play.

chart: Click here

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