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Forex Flash: Sighs of relief from Italy dashed - BTMU

FXstreet.com (Barcelona) - Derek Halpenny, European Head of Global Markets Research at the Bank of Tokyo Mitsubishi UFJ notes that there was a sense of relief yesterday on the news that the divided Italian political landscape had come together with the center-left and centre-right reaching a deal to elect a new president.

However, that has has since unraveled with the center-left splitting, which resulted in parliament failing to vote in Franco Marini as president. He adds that this of course does not bode well for any chance of a grand coalition and the collapse of the vote raises question marks over Pier Luigi Bersani’s leadership of the Democratic party.

He notes that the financial markets remain ambivalent to the ongoing gridlock in Italy, but further evidence of no end to the gridlock, like we got yesterday, increases the risk that the current ambivalence comes to a sudden end, resulting in increased market volatility. He sees that there is little out of Europe today for the markets to focus on but next week will be key for the UK with real GDP data for the first quarter released next Thursday. He writes, “With the government and the IMF on a collision course over whether ‘Plan A’ remains appropriate for the UK, confirmation of another technical recession after the 0.3% contraction in Q4 would be very damaging for the government. The key focus today will be the LTRO repayment. The EONIA rate has drifted higher on reduced liquidity which in turn has helped to support the euro.”

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