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EUR/USD Price, Chart, and Analysis
- Political instability in Italy is back.
- Stocks and Italian government bonds fell sharply.
Italian Prime Minister Mario Draghi resigned today, a year and a half after the collapse of the coalition government. Draghi offered his resignation to President Sergio Mattarella earlier this week but has been asked to return to parliament and try to form a new government. However, Prime Minister Draghi failed to gain the support of all coalition partners and handed in his resignation this morning. It looks like President Mattarella will soon dissolve parliament and call provisional elections.
Mr Draghi’s resignation and uncertainty over the upcoming election continued to hit Italian financial markets, with the FTSE MIB index of Italy’s 40 largest companies down around 2%…
And Italian government bond yields soared. The Italy-Germany 10-year yield spread widened another 15 basis points to around 235 basis points. Rising borrowing costs in Italy will pose further problems for ECB President Christine Lagarde ahead of today’s ECB meeting, who is expected to raise interest rates for the first time since the second quarter of 2011.
ECB preview: How will the euro react?
All economic news and events affecting the market can be found on the DailyFX calendar
The single currency was weaker against the dollar, but muted ahead of the ECB rate decision. EUR/USD has rebounded after falling below par in the past few days, but the pair now appears to be under further pressure.
EUR/USD Daily Price Chart July 21, 2022
Data from retail traders shows that 63.00% of traders are net long, with a long-to-short ratio of 1.70 to 1. Net longs decreased by 2.12% from yesterday and 23.44% from last week, while the number of net shorts increased by 0.86% from yesterday and 37.65% from last week.
We usually view crowd sentiment as a contrarian, and the fact that traders are net long suggests that EUR/USD could fall further. Still, traders are less net long than yesterday and last week. The recent change in sentiment warns that the current EUR/USD price trend could soon reverse higher, although traders remain net long.
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