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Forex Flash: Next week's main headlights in FX – Merrill Lynch

Merrill Lynch analysts warn of the impending fiscal cuts that are likely to trip GDP growth: “The full sequester is poised to hit on March 1, and as Ethan Harris notes in this edition, the probable $50bn spending cut over a seven-month period would amount to a 0.5% of GDP shock”, wrote analyst Gustavo Reis, expecting GDP growth of just 1% in 2Q.

In regard to this weekend's election in Italy, the greatest post-election risk is a deteriorated growth outlook rather than the backtracking of recent reforms: “Whoever wins the elections has limited room to evade the new balanced budget rule, but growth prospects may dim further if a “reform-fatigued” coalition triumphs”, said Merrill Lynch analysts.

Crossing over to Japan, all eyes remain on the dovish spirit of the government and speculation about who's going to lead the BoJ: “Whoever takes the job from among the frontrunners is likely to be closely aligned with the administration, and therefore set to strike a notably more dovish tone than current Governor Shirakawa. Looking ahead, the real test comes during the new BoJ’s first policy meeting in early April”, they wrote.

Forex Flash: Gilts remain in narrow range – RBS

According to Technical Markets Strategist Dmytro Bondar at RBS, “The price of Gilts has dipped to the 114.86 region, but found support at the 123.6% projection from the December-January impulse wave. From the safe havens, Gilts look increasingly less attractive as the overall bias remains for a range of 114.60-116.60 with a possible recovery towards 117.80 if the latter is ruptured. However, this is unlikely to happen in the near-term – for the week, we favor a range trade between 114.60 and 116.60. A break of the 114.58 level triggers a move down towards 114.00 and eventually 113.14. Conversely, an upside break points to recovery towards 117.82.”
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Forex: EUR/USD sidelined at 1.3160 after Fed officials' speeches

The EUR/USD is trading sidelined to 1.3160 which, according to Windsor Brokers analyst Slobodan Drvenica, could confirm a bearish breakout in case of a break below. The pair is under pressure on US Fed Powell and Rosengren speeches.
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