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Yields on Italian bonds are dropping sharply. The yield on 10 year bonds is over 4% to 6.6%. This is still very high, but already further away from scary 7% level. Yields on 2 year notes are falling faster: over 5.6% to 6.04%.

The ECB is probably very active in the markets. Only a return to 4-5% will convince markets that stability has returned. The Italian Senate begins a debate about new austerity measures at 10:30 GMT. They are expected to vote and approve the measures, paving the way for Berlusconi’s departure.

EUR/USD is on the rise, but the moves are still limited: the pair isn’t able to convincingly conquer the 1.3650 line, even though it temporarily climbed above it.

See more in the euro dollar forecast.