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Forex Flash: Eur/USD looks bearish ahead - BTMU

Bank of Tokyo Mitsubishi UFJ analysts are bearish on EUR/USD for the week ahead of feel that spot will likely move within a range between 1.2900-3300.

The begin by noting the the Euro´s correction lower during February has extended further following the release of the Italian election results which have heightened political uncertainty. They see that while the center-left parties led by Bersani secured a majority in the Lower House, they failed to secure a majority in the Senate even with support from Monti’s centrist parties. Further, the hung Senate will either require the center-left parties to co-operate with the center-right or Five Stars Movement.

The team feel that negotiations will likely be held in the week ahead in an attempt to reach a co-operative agreement to form a workable government. They write, “Protracted negotiations will leave the euro vulnerable for longer to the downside although fresh elections are unlikely to be called in the week ahead. We expect EUR/USD will find strong support around the 1.30-level helping to limit scope for further downside in the week ahead. The pair has already fallen sharply during February from an intra-day high of 1.3711. In the US, it appears unlikely that a last minute political deal will be reached to avert the sequester spending cuts set to begin hitting the US economy on the 1st March, which may weigh upon the US dollar.”

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