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Euro posed to breach 1.3000, capisci?

Markets are still debating the aftermath of the unexpected results from the parliamentary elections in Italy. The discomfort is characterized by a generalized weakness in the European bourses, Italian and Spanish benchmark bond yields ticking higher and EUR/USD meandering around 1.3020/1.3100 within a clear downside bias.

… Politicos are back

The euro came out weaker after the first near-term hurdle just passed, while further selling interest may be lying ahead, as the so called US ‘sequester’ is meant to kick in on Friday, representing the second tough hurdle.

The renewed specters of ungovernability in the Italian peninsula promise to be very difficult to allay this time, as the heterogeneity of opinions and parties pro-euro and against the single currency look set to stir a cocktail of unforeseeable consequences, both for the domestic economy and for the bloc as a whole. It would be a mistake to forget that Italy represents not only the third economy of the euro area behind Germany and France, but also the most indebted one. A priori, it seems that new elections would be the best-case scenario, but late reluctance to accept this fact by political leaders is actually ruling out this alternative.

So, in a quick glance, former differences between Italy and Germany, for instance, would now be not only regurgitated but also exacerbated. Former commitments of further austerity measures implemented by the technocrat government of Mario Monti – who finished in fourth place – would now be put on ‘stand-by’ mode or ‘forgotten’.

The ‘punishment vote’ demonstrated once more its power among Italians, in spite of bringing Silvio Berlusconi back on the limelight, and once more it has spoken against market consensus. Italy – and its future as a member of the euro bloc - has now become a big question mark for the global markets, and its cumulus of uncertainties would surely hit investors’ confidence, with a more severe impact on the shared currency.

The bloc currency is now trading around 1.3050/80, where sits the 38.2% Fibonacci retracement of the move up from last summer, and trading closer to the interim support at 1.2998, this year’s lows. Further selling interest would find the area around 1.2880/95, where converge the 200-day moving average and the 50% retracement, ahead of 1.2660/85, home of the 61.8% retracement and November lows.
Alternatively, the near-term resistance is located at 1.3150 (100-day moving average) ahead of the 7-month uptrend in the vicinity of the 1.3300 figure.

Forex: EUR/GBP trading negatively at 0.8610/11

Yesterday’s breach of the 0.8800 level seems like a wayward dream a day later, as the EUR/GBP has found itself trading considerably off its European highs just 24 hours ago. An earlier attempt at the upside was stonewalled at the 0.8643 region (session high), reversing the pair and driving downwards into negative territory. With the turmoil continuing in Italy and on the heels of UK data, the cross has settled in the area of 0.8610/11 in these moments.
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