Euro / US Dollar (EU
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Political impasse in Italy

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02/27/2013 | 05:26 pm
Opinion : Bearish under 1.305 
Target price : 1.2706  Potential: 2.74%
Downward pressure on the Euro is confirmed following the complicated Italian legislatives despite the confirmation of the U.S. monetary policy by Ben Bernanke. Annual high points already seem so far away.

The Italian elections drive the third European power in a political deadlock which worries markets. The left-wing coalition, led by Pier Luigi Bersani and ready to pursue the necessary reforms to the country’s recovery, is thus forced to form a larger coalition despite winning an absolute majority in the Lower House of Parliament.

Unfortunately, neither Silvio Berlusconi, nor Beppe Grillo, a former clown which became a political activist, respectively second and third, do not seem to sufficiently soften their populist and anti-austerity rhetoric to promote a favorable outcome to the negotiation. Mario Monti, the markets’ favorite, gets a modest fourth place with about 10% of the vote, not enough for M. Bersani to become the Prime Minister. What to stick the country in instability, until a probable organization of a new vote.

Markets do not like that. Italian yields are increasing and the spread with the German Bund skyrockets to a record level since the end of 2010 whereas Rome will conduct an auction of 5 and 10 years government bonds this Wednesday. The Euro decrease, in spite of a Ben Bernanke’s speech in line with the current accommodative policy of the Fed.

Graphically, the single currency has broken down USD 1.3130 in closing and threatens now to cross USD 1.3053 to accelerate towards USD 1.2706. The monetary break post-G20, the Italian situation and the fragility of the European macroeconomics could contribute significantly.
Mathieu Burbau
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