Unfortunately, we can not see the end of the political crisis in Italy so far. The nominee Prime Minister Carlo Cottarelli has not presented the composition of his temporary government to the president. In addition, there is a risk that the technical government will not receive a vote of confidence in the parliament. The largest groups such as the Five Star Movement or the League are already announcing that they will not support the government. This makes it very likely that early elections will be announced soon, which may have stabilized the situation and would not deepen the crisis of the markets' confidence in the Italian economy. Theoretically, there is little time to influence the political preferences of Italians who, according to recent surveys, would entrust power to populists from the 5 Stars and Northern League Movement. The dynamics of financial markets shows, however, that one does not have to wait long for topics to reach the headlines of the media. Can fear, however, be an effective tool for practicing politics? Time will tell.
Above all, the very strong increase in the profitability of Italian bonds is worrying, which means that some economists are already warning against the next debt crisis in Europe. Investors are slowly losing confidence in Italian bonds. This may also complicate the plans to leave loose monetary policy for the European Central Bank.
The weaker investment climate is conducive to the strengthening of the Japanese yen or the Swiss franc considered safe harboring. In addition, there is a positive sentiment towards the US currency. The dollar index approached yesterday in the vicinity of local maxima from October-November 2017 running around 95.00 points. Today, important data for USD will be published regarding PCE core inflation and the revision of US GDP for the first quarter of this year, which should support the current Federal Reserve monetary policy.
Let's now take a look at the USD/JPY technical picture at the H4 timeframe as this is the currency pair that is being perceived as a safe-haven during a turmoil and uncertain times. The market fell out of the channel and has found a low at the lower boundary of the technical support zone at the level of 108.09 so far. The bounce from this level is corrective in nature and might indicate only a temporary pull-back towards the levels of 108.81 - 109.10. In order to regain the control over the market the bulls would have to break out back above the level of 109.83 - 110.00. The next important technical support is seen at the level of 107.91 - 107.48 and might be violated very quickly if the Italian crisis gets even worse.