The euro edged higher on Monday after a short-lived sell-off tied to Italy’s inconclusive weekend election, helped by the creation of a coalition government in Germany that eased political uncertainty there.

The two winners of the general election in Italy were the Five Star Movement (M5S), which secured over 30% of the vote, and the right-wing League, which emerged as the largest party within the center-right coalition. The center right is the leading bloc, with about 37% of the vote, although this will probably not be enough to win an absolute majority of seats in both houses of parliament. The center-left performed worse than polls had suggested, while to the left of the Democratic Party, Free and Equal was in disarray, barely making it into parliament. The center right is likely to be given the mandate to try to form a government. However, the prominent position of the League might complicate the center-right’s job of extend its parliamentary support, while a potential alliance between the M5S and the League, which is numerically possible, remains politically difficult. Therefore, uncertainty is likely to prevail over the coming weeks.

In Germany, 66% of the participating SPD members approved the grand coalition treaty yesterday. The so-called chancellor vote in the Bundestag and the swearing-in of the ministers will take place on 14 March. In order to become chancellor again, Angela Merkel needs the majority of all members of parliament, regardless of whether they participate in the vote or not. Despite some dissenters, Merkel’s reelection is likely. The CDU/CSU and the SPD together have 399 seats out of the 709 (56%) in the Bundestag.

This is what our forex trading strategies look like:

EUR/USD

Trading strategy: Long

Open: 1.2330

Target: 1.2580

Stop-loss: 1.2210

Recommended size: 1.67 mini lots per $10,000 in your account

Short analysis: The EUR/USD temporarily fell below 7-day EMA today, but is going to close above that level at the end of the day. A close above the 30-dma at 1.2350 would be another bullish signal. Our bid at 1.2330 was filled and we target 1.2580 now.