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Political uncertainty and strong data keep the USD buoyed

The US dollar has continued to advance versus most competitors on Tuesday benefited by broad risk aversion, although it received a fresh boost after the US economy reported better than expected housing, manufacturing and confidence data. Not even Bernanke's comments supporting the Fed's accommodative stance were enough to prevent the greenback from rising.

Federal Reserve chief Ben Bernanke said before the US Senate Banking Committee that the central bank would carry on with its QE programs, as the benefits of further easing outweigh the risks for the US economy.

Also, strength in the US economy is attracting investment and hurting commodity currencies. The AUD, the NZD and the CAD are among the worst performers, while the yen holds onto gains versus the USD despite intraday weakness.

Meanwhile, the EUR/USD selloff paused after the cross hit an 8-week low of 1.3017 during the European session as markets continue to digest the political news out of Italy. None of the parties won majority. "The result is an inconclusive outcome that left markets reeling in the face of uncertainty surrounding who will govern the country and the potential for recent economic progress from the Monti government's austerity efforts to be lost", says Jason Ball, FX Analyst at Wells Fargo Bank.

Euro eyes 1.3000

Technically speaking, the shared currency holds a bearish tone from hourly to daily charts. With the EUR/USD trading below the 100-hour SMA and the 1.3100 psychological level, there is scope for further losses toward 1.2997 (2013 low). However, as indicators approach oversold levels and in the absence of news, the pair could see some consolidation before another leg lower.

On the upside, regain of the 1.3115 area (100-day SMA) is crucial to ease the pressure but the EUR/USD needs at least to recover above 1.3230 (ascendant trendline off July low) to threaten the current bias.

According to the TD Securities team, European political uncertainty has driven market sentiment overnight as Italy faces the prospects of another election if a coalition cannot be formed. "While the FX market has already made its big moves on the development, the sharp widening of Eurozone peripheral spreads (to an extreme of 60bps wider on the 10-year tenor for Italian spreads) has the potential to put further pressure on the EUR, and European currencies in sympathy", says TD Securities. "That said, the EUR's has already made a significant and rapid move lower from its peak at the beginning of February (just above 1.37), touching a low of 1.3018 overnight. 1.3000 is the 2013 low for EURUSD, and should provide strong support for now".

Forex: USD/JPY in session lows around 91.30

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