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  • Italy has a new government that might change policies affecting ECB’s job.
  • Lagarde has promised not to support nations that commit policy errors.
  • Changes in fiscal policy could worsen the inflation situation in the eurozone.

Today’s EUR/USD price analysis is bearish as vulnerable Italy faces political uncertainty that comes with a new government. In response to a question concerning Italy’s likely future government, the president of the European Central Bank, Christine Lagarde, stated on Monday that the bank will not utilize its most recent emergency program to purchase the bonds of nations that commit “policy errors.”

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The right-wing coalition led by Giorgia Meloni won the general elections in Italy on Sunday, taking over one of the eurozone’s largest debt loads at a time of rising borrowing costs and an impending recession.

While coalition member Matteo Salvini has asked for a rise in the deficit, Meloni has promised to maintain Italy’s precarious financial stability and adhere to EU budget standards.

In addition, Lagarde warned that nations utilizing their budgets to shield their residents from skyrocketing food and energy prices must be careful not to fuel future price increases. Lagarde is currently fighting the highest inflation in the history of the eurozone.

Some governments in the eurozone are assisting households with fiscal measures, but doing so raises already substantial budget deficits and, by boosting demand, heightens inflationary pressures.

EUR/USD key events today

Investors await speeches from Fed Chair Powell and ECB president Lagarde, which might contain clues on future monetary policy. There will also be news releases from the US, including core durable goods orders, CB consumer confidence and new home sales.

EUR/USD technical price analysis: Euro pauses collapse with support at 0.9550

EUR/USD price analysis

Looking at the 4-hour chart, we see the price trading in a range with resistance at 0.9700 and support at 0.9550. The price is also trading below the 30-SMA showing the larger trend is bearish. Although there has been a pause in the price collapse, bears still have momentum on their side, as seen in the RSI, which trades below 50.

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For this reason, the price will likely break below 0.9550 after the consolidation and head lower. Buyers will only take full control if the price breaks above the 30-SMA and start making higher highs and higher lows.

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