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Forex Flash: Central banks highlight week ahead – Westpac

FXstreet.com (Barcelona) - The EUR is facing multiple wounds, as opportunities to sell strength likely few and far between. According to Global FX Strategist Sean Callow at Westpac, “Our 1-month 1.2700 target is revised to 1.2500 – suspect ECB plays a steady hand next week, but EUR should trade heavily into the meeting on heightened easing speculation amid disappointing PMIs/IFO, not to mention the negative confidence shock still reverberating from Cyprus.

A Bersani led Italian government seems very unlikely given signals from Grillo suggest Bersani will not be able to meet President Napolitano’s key test that he be able to pass a no confidence vote. Odds of fresh elections are warming but that will require the election of a new president, yet the key parties cannot even reach agreement on the candidate.

Even after the recent sharp rise Italian-bund 2yr spreads still sit below 200bp, albeit just. The spread could easily return to the 250-350bp range in coming weeks. EUR/CHF looks overvalued vs. a range of key Eurozone stress indicators and should be sold for a return to 1.2100.

Forex: EUR/JPY rises closer to daily high

The EUR/JPY became heavier by the end of the Asian shift and fell to as low as 120.31. The market was able to bounce back throughout the European morning and made a stronger push on the NY session, where it got to 122.77, closer to the daily high at 122.86.
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Forex Flash: ECB maintains straight line – Goldman Sachs

The ECB has established a very easy monetary policy stance: market overnight rates are close to zero and the liquidity situation is ample. However, “owing to impairments to monetary policy transmission stemming from the fragmentation of European financial markets, this easy policy stance is not being passed through to the real economy in the periphery, where stimulus is most needed.” notes the Economics Research Team at Goldman Sachs.
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