EUR/USD spikes up to 1.17 on Italy headlines before retreating back to 1.1670

• Developments in Italy suggest that a government is close to being formed.
• The initial reaction lifts EUR/USD to a fresh session high near 1.17.
• The US Dollar Index tries to hold above the 94 handle.

The EUR/USD pair quickly jumped to a fresh session high at 1.17 after latest headlines from Italy revealed that 5-Start and League were close to reaching a government agreement as they were able to offer a new candidate for the ministry of economy. However, the pair quickly erased its knee-jerk upside and was last seen trading at 1.1670, where it was up 0.06% on the day.

Italian news outlet La Stampa reported that both parties' leaders decided that the role of the minister of EU relations would be offered to Paolo Savona and Giovanni Tria, who is known as a pro-euro politician, would be named as the new minister of finance. However, there is no official announcement from either side yet, and a government deal, if reached, is likely to be announced in the next couple of hours.

On the other hand, today's data from the United States showed that personal spending grew by 0.6% in April to surpass the market expectation of 0.4%. Furthermore, core-PCE price index, the Federal Reserve's preferred measure of inflation, increased by 0.2% on a monthly basis (vs. 0.1% expected) and remained steady at 1.8% annually.

The US Dollar Index recovered back above the 94 handle on the back of robust data but is now having a tough time extending its upside as the market interest shifts to European currencies. At the moment, the index virtually unchanged on the day at 94.07.

Technical outlook

The pair could encounter the first technical resistance at 1.1700 (psychological level), ahead of 1.1770 (20-DMA) and 1.1830 (May 22 high). On the downside, supports are located at 1.1640 (daily low), 1.1600 (May 28 low) and 1.1510/00 (May 29 low/psychological level).