Italian politics in focus, weighing on the euro

Italian politics are a focus for the start of the week in the run-up to the September 25 election and the news that an Italian centrist party has fallen out with the Democrats could be a weight for an already beaten down euro.

Days after agreeing to join forces in a bid to prevent a right-wing landslide in September elections triggered by the fall of Prime Minister Mario Draghi’s government. 

The Azione party pulled out because “the pieces just didn’t fit together,” its leader, Carlo Calenda, said during an interview with national broadcaster Rai on Sunday.  

“I’m not comfortable with this, there is no courage, beauty, seriousness and love in doing politics, so I communicated to the leaders of the Democratic Party that I do not intend to continue with this alliance,” Calenda said. 

Mario Draghi’s broad coalition collapsed in July after the Five Star Party failed to back the government on a key vote and this put Italy’s public finances into scrutiny by financial markets and has resulted in a widening of the risk premium between Italian and German bonds. 

Meanwhile, Moody's has affirmed Italy's sovereign rating at Baa3 and cut Italy's outlook to "negative" from "stable". The rating agency said the ''risks to Italy's credit profile have been accumulating more recently because of the economic impact of Russia's invasion of Ukraine and domestic political developments, both of which could have material credit implications"

• EUR/USD bears are moving in with eyes on a significant downside extension