EUR/USD is trading back under 1.13. In the view of economists at Scotiabank, Italian politics is set to weigh on the common currency.

The 1.1275/85 zone to stand as intermediate support

“The Italian lower house announced today that voting on a new Italian president will start on January 24th, with Draghi possibly pulled away from the PM office. Political uncertainty in Italy has widened the spread of Italian over German 10-yr yields to around its highest since November 2020 and is set to weigh on the EUR for the next few weeks, at least, while the ECB/Fed divergence backdrop continues to pull the currency lower over the medium-term.”

 “The 1.1275/85 zone will stand as intermediate support ahead of 1.1220/35 that stands before a test of the 1.12 zone.”

“EUR/USD now faces resistance in the mid-1.13s with ~1.1365 and ~1.1385 following (50-day MA at 1.1369 is the mark to beat on a closing basis).”