By Richard Leong
NEW YORK (Reuters) - 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.
Italy's election, which pointed to prolonged political jitters after right-wing and eurosceptic parties did better than expected, was somewhat balanced by Germany's Social Democrats agreeing to join with Chancellor Angela Merkel's conservatives, ending a period of uncertainty in Europe's biggest economy.
Taken together, the election outcomes did not to alter investors' view on the strength of the euro zone economy, although the Italian results put political risks in the region back on the radar.
"All in all, they are neutral to slightly positive for the euro," said Nick Bennenbroek, head of currency strategy at Wells Fargo (NYSE:WFC) Securities in New York.
Bennenbroek and other analysts said traders will turn their focus to four major central bank meetings this week as well as the U.S. payrolls report due Friday.
The Reserve Bank of Australia will meet on Tuesday, while the Bank of Canada will hold a policy meeting on Wednesday. European Central Bank policymakers will convene on Thursday, while their counterparts at the Bank of Japan will meet on Friday.
The euro (EUR=) was last up 0.09 percent to $1.2328.
The single currency rose to a two-week high at $1.2365 in Asian trading after the German results. It quickly retreated by 0.8 percent toward the day's low at $1.2267 as results from Italy pointed to a messier outcome than expected - a strong showing for anti-establishment parties and no group able to form a stable government.
The euro was up 0.31 percent to 130.65 yen. It had fallen as much as 0.7 percent to 129.37 yen, its lowest since late August in early London trading.
In an indicator of how sanguine currency markets were about Italy's turmoil, risk reversals in currency derivatives markets for euro/dollar
Even latest positioning data showed euro bulls remained upbeat, with net long currency positions still near record bullish bets in early February.
(GRAPHIC: EUR FX and positions - http://reut.rs/2FcSG1t)
More worryingly from the euro's perspective, recent data showed that economic momentum has stalled in the euro zone, indicating the single currency may be coming under some pressure. A Citi economic surprise index for the currency bloc <.CESIEUR> is at near six-month lows.
The dollar steadied after wobbling last week on U.S. President Donald Trump's proposed tariffs on imported steel and aluminum, raising fears of a trade war.
The greenback