Euro slightly higher after steep decline on Italian election results

February 27, 2013 in Forex Analysis

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Economic news (27 February 2013) – The euro started the first day of the week with a sharp depreciation against its major currency rivals after results of the parliamentary elections in Italy raised questions about the future of financial reforms. Following the reports on Tuesday, the single currency fell to a 7-week low against the dollar, depreciating by 1.1% to an intraday low of 1.3027, having peaked at 1.3318 on Monday before the announcement of the preliminary results.

In early Wednesday trading, the euro managed to climb slightly against the dollar, and was trading at 1.3082 at the time of writing, as investors are anticipating today’s auction of Italian 10- and 5-year government bonds. Italian 10-bond yields reached their highest level since December, rising to4.91% during Tuesday’s session.

Italian election results stunned the markets since there is no clear winner, which prompted fears of a political crisis in the already economically unstable and debt-ridden country. The gloom outlooks caused a big sell-off of European equities as investors were overwhelmed by economic uncertainty and a potential reigniting of the Eurozone crisis.

Meanwhile, the dollar increased against its major currency counterparts on Tuesday, after a series of positive US economic data and Fed Chairman Ben Bernanke’s support for continuing the QE (quantitative easing) program.

Looking ahead of the day, the Italian 10-year bonds auction is expected to cause more volatility for the euro, and ECB President Mario Draghi is to deliver a speech addressing the Bank’s observation of the European economy.

 

Technical analysis

EUR/USD

At yesterday’s session the euro was moving in the range of 1.3015-1.3115. This morning the currency pair was trading at 1.3045-1.3070.

Should the euro overcome the resistance zone of 1.3065-1.3085, its aim will be reaching and testing the 1.3115-1.3140 zone. If successful, the upward trend will continue to 1.3160-1.3175. If the euro falls below the support zone 1.3040-1.3015, the next support is expected to be in the 1.3000-1.2980 area. In case of a breakdown, the downward trend will continue to 1.2950-1.2930.

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