EUR/USD dribbles at a 20-year low near 0.9700, ECB vs. Fed, and Italy's election results are closely watched

Bears in the EUR/USD pair take a break around the lowest levels since September 2002, around 0.9700 as of press time Monday AM in Asia. On Friday, the main currency pair dropped the most in eight days, reaching a new multi-year low of 0.9667. Prior to the significant drivers, the most recent corrective recovery looked lackluster.

All factors contributed to the EUR/USD pair's loss during the previous week, including high US PMIs and weaker activity data from the bloc, as well as Russia's stern warning to the West and the Group of Seven's (G7) determination to respond with penalties. The euro, however, looks to be licking its wounds at the multi-year low as exit polls for Italy's elections indicate an end to political instability, even if certain European nations, such as Germany, provide some solace for the right-wing leadership in Italy.

Nonetheless, the initial readings of the S&P Global PMI for the month of September indicated that the European economy contracted significantly, hampered by rising energy prices. The German Services PMI reached its lowest level in two years, while its European counterpart reached its lowest level in 19 months. In addition, Manufacturing PMIs reached their lowest level in twenty months. In September, the US S&P Global Manufacturing PMI increased to 51.8 from 51.5, and the US S&P Global Services PMI improved from 44.6 to 49.0.

Jerome Powell, chairman of the Federal Reserve, stated elsewhere on Friday, "We are committed to deploying our tools." Following him, Fed Vice Chair Lael Brainard stated that 'hard' inflation is impacting low-income people. Raphael Bostic, president of the Atlanta Federal Reserve, told CBS' "Face the Nation" over the weekend that he still believes the central bank can reduce inflation without substantial job losses, given the economy's sustained pace, as reported by Reuters, citing the Fed official's interview.

Reuters stated on a separate page that the most recent polls for the Italian elections indicated that the right-wing alliance led by Giorgia Meloni's Brothers of Italy party appeared poised to gain a comfortable majority in the new parliament. The week prior to the elections, The Guardian reported that Germany's ruling Social Democratic party warned that her victory would be detrimental to European collaboration. Lars Klingbeil, chairman of Chancellor Olaf Scholz's SPD, stated that Meloni had associated herself with "anti-democratic" forces like as Viktor Orbán, the prime minister of Hungary.

It should be remembered that Russia's threat to use nuclear weapons if necessary in a conflict with the West and the G7's efforts to muster bravery against Moscow also weighed on risk appetite and submerged EUR/USD values. According to Reuters, "the CBOE Volatility Index, also known as Wall Street's fear barometer, jumped above 30 on Friday, its highest level since late June, but below the 37 average level that has signaled market selling peaks since 1990."

Wall Street closed in the red, US Treasury yields increased, and the US Dollar Index (DXY) reestablished its multi-year high.

The election results in Italy and a speech by European Central Bank (ECB) President Christine Lagarde will be crucial for intraday price movements. Nonetheless, the week will be dominated by the Ukraine-Russia conflict, comments from Fed Chair Powell, and US Durable Goods Orders for direction.

A two-month-old support line near 0.9650 limits the EUR/near-term USD's fall. To convince traders, the recovery moves require confirmation from a descending support-turned-resistance line near 0.9830 as of press time.