EUR remains under pressure after Italian Bond auction


The EUR has moved above the 1.3100 level after consumer confidence numbers and the Italian Bond auction was completed. It rose to a high of 1.3122, but since then has fallen off on profit taking and some lack of follow through by traders.EUR remains under pressure after Italian Bond auction February 27 2013

Consumer Confidence in the Euro zone slightly improved from -23.9 to -23.6 in February, as expected, and business climate rose from -1.09 to -0.73, the consensus had been -1.04, industrial confidence improved from -13.8 to -11.2, the consensus had been -13.2, services sentiment rose from -7.7 to -5.4, the consensus had been -8.5 and economic sentiment indicator improved from 89.5 to 91.1, the consensus had been 89.8. Yet the EUR could not break the 1.3125 level.

Obviously, the political problems in Italy continue to weigh on the single currency. Confirming concerns of Italy’s political stalemate, the Italian 10-year bond auction saw yields rise from 4.17% to 4.83%. The 5-year sale also found yield moving up from 2.94% to 3.59%.

The EUR remains locked in uncertainty after the final outcome of the Italian elections. The political hurdles now arising in Italy surely seem to show further selling of the EUR. This was magnified after former PM Silvio Berlusconi and the leader of the anti-euro movement ‘Five Stars’, Beppe Grillo, declined to make any alliances with either the centre-left or the technocrats led by Mario Monti. Why would they? Both already have what were looking for, contrasting with the desperate need of Pier Luigi Bersani to guarantee some sort of governability and to comply with market expectations. With the Italian people voting against austerity policies, the markets await comments from DCB President Mario Draghi. These austerity policies were key to the ECB helping steady the Italian economy.

Technically, the next resistance levels are at 1.3125, 1.3195 and 1.3245. Current EUR support remains at 1.3070, 1.3020 and 1.2960.

Further reading: Forex Analysis: EUR/USD Approaches Head-and-Shoulders Downside Target

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Matthew Lifson is a Foreign Exchange Trader and a Market Analyst. with Cambridge Mercantile Group.