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Downside favoured for the euro

FXstreet.com (Barcelona) - The sentiment surrounding the shared currency remains palpably depressed at the beginning of the trading week. Indeed, the EUR/USD has retraced its earlier gains, posted on the heels of the Italian electoral results over the weekend, falling from the proximities of 1.3085 to the current area of 1.3040/50.

… PMIs and Italy on focus

The situation in Italy is slightly less tight than last week, as the re-election of President G.Napolitano ushered in a respite amongst traders. However, the political deadlock is far from solved as the centre-left party lost its leader, P.L.Bersani, over the weekend’s developments. The re-elected President would favour another technocrat government and his favourite candidate would be G.Amato, although the confirmation of the new PM would come by Wednesday. Despite the fact that a technocrat government would be positive news for the markets, it may be short lived and in that particular scenario, both the former PM S.Berlusconi and ex-comedian B.Grillo would find themselves in better shape if new elections are called. As such, uncertainty still reigns, however ahead in the week the Italian front should shed some light on the future political panorama.

In addition, an almost sure-fire source of euro-weakness would culminate on tomorrow’s release of the preliminary manufacturing and services PMI prints in the core and peripheral members of the bloc. Furthermore, the data would add to the ongoing market chat about the likeliness of a rate cut by the ECB in its next monetary policy meeting.

From a technical perspective, the cross is now navigating around 1.3040, below the up-channel support set from April lows.
The immediate support emerges at the psychological mark at 1.3000 en route to the area of 1.2975, home of the 23.6% Fibonacci retracement of the February-April decline. Further selling interest would then target the key 200-day moving average at 1.2930/35

On the upside, the initial hurdle would be the area of 1.3090/1.3115, where sit the channel support line and the 38.2% Fibonacci retracement of the February-April slide, ahead of 1.3201/30 (last week’s highs and the 50% Fibonacci retracement).

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