EUR/USD – Markets Cautious Ahead of Italian Election Results

EUR/USD has edged higher in Monday trading, as Italians go to the poll in a two-day parliamentary election, which ends later on Monday. The euro pushed across the 1.32 level in early Monday trading. The Italian election is today’s major event as we begin a new trading week. There is only one Eurozone release, as Deutsche Bundesbank President Jens Weidmann speaks in Paris. There are no US releases scheduled for Monday.

There is little in the way of fundamental releases on Monday, but the markets can be forgiven for being cautious and nervous so early in the week, as all eyes are focused on the Italian Parliamentary elections. The election race has been tight, with center-left leader Pier-Luigi Bersani favored to win the most seats. Most analysts expect Bersani to forge a coalition with outgoing Prime Minister Mario Monti, if he is given the chance to do so. Former Prime Minister Silvio Berlusconi, known for his outspoken manner and his controversial style, has certainly made the election more colorful. However, the markets clearly prefer a strong showing by Bersani and Monti, who would likely continue current economic policy. Besides concerns that Berlusconi could do well, the markets are worried about an inconclusive vote, which could usher in a period of political uncertainty in Italy, at a time when the Italian economy is struggling and weighed down by tough austerity measures. If the election results do not fall in line with the market’s hopes, we could see some volatility from EUR/USD. 

In the US, the Federal Reserve released the minutes of its most recent policy meeting last week. In the meeting, members raised the possibility of ending the current round of QE even before the US employment situation improves, due to concern about the negative effect that QE could have on the financial markets. The Fed has left QE open-ended, but has previously stated that it would not end before unemployment fell to 6.5%. Meanwhile, the markets are having a tough time measuring the extent of the US recovery, as US data continues to paint a mixed picture. Last week’s numbers pointed to more of the same. Unemployment Claims came in higher than forecast, disappointing the markets. Existing Home Sales managed to beat the estimate, but Housing Starts failed to meet expectations. The manufacturing sector continues to stumble, as the Philly Fed Manufacturing Index dropped sharply. Despite the lackluster fundamentals, the dollar has made up a lot of ground against the euro, as the weak Eurozone data raises red flags about the health of the bloc’s economy.

EUR/USD for Monday, February 25, 2013

EUR/USD February 25 at 10:20 GMT

1.3241 H: 1.3250 L: 1.3181

EUR/USD Technical

EUR/USD crossed the 1.32 late in the Asian session, and continues to show improvement in European trading. The line of 1.3240 is under pressure from the pair. There is stronger support at 1.31.70. On the upside, 1.3280 is providing resistance. This line could see activity if the euro can sustain its upward momentum.

Current range: 1.3240 to 1.3280.

Further levels in both directions:

• Below: 1.3240, 1.3170, 1.3130, 1.3080, 1.3030, and 1.30.
• Above: 1.3280, 1.3350, 1.34, 1.3480, 1.3568 and 1.3627.

OANDA’s Open Position Ratios

The EUR/USD ratio is showing movement, with an increase in long positions. This is consistent with the activity we are seeing from the currency pair, as the euro has posted some gains against the dollar in Monday trading. Trader sentiment continues to be close to an event split, given the recent movement in favor of long positions.

The euro has reversed direction after last week’s losses, and is pushing higher against the dollar. All eyes are focused on Italy, which will release election results later on Monday. Depending on the results, we could see some volatility from EUR/USD.

EUR/USD Fundamentals

• All Day: Italian Parliamentary Election (Day 2).
• 15:30 Deutsche Bundesbank President Jens Weidmann Speaks.

*Key releases are highlighted in bold

*All release times are GMT

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.