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Euro Weakens Due to Italys Elections Ahead of Bond auction, Yen Holds Its Ground

The Single currency against the US dollar remains in 1.3115/1.3024 recently established tight range in the aftermath of a decline from 1.3705 towards 1.3024 in February, while in Italy the elections produced an uncertain outcome that could lead to another election in the following months. Additionally, today Italy is auctioning 4bln in 10 year bonds and 2.5bln in 5 year bonds that will test market confidence and borrowing ability for Italy, yesterday the Italian 10 year yield jumped 4.89% and Moodys placed countrys sovereign credit rating on a negative watch. The USDJPY corrected from highs at 94.43 to 90.93 and remained closed to downside limit, consolidating around 91.85 as Ben Bernanke stated that quantitative easing will continue at the same pace as well as saying that increased risk-taking costs do not outweigh the benefits of promoting stronger economic recovery and more rapid job-creation. Also the Yen strengthened slightly yesterday after the main opposition party in Japan reported that may not approve Iwata for BOJ deputy position, NIKKEI at the moment is losing 1.27% trading at 11,253.97. Concerning the British pound, today a second estimate is expected for the UKs GDP at the fourth quarter projected to remain unchanged at -0.3%. However with UKs sovereign debt recently downgraded any negative release would refresh bearish momentum and put in test GBPUSD 1.50 handle. The EURGBP sank from cap at 0.8813 as euro weakened on Italys election uncertainty to 0.8575 while the British pound was in consolidation phase in the immediate trading.

The British pound versus the US dollar started the week with a gap lower, around 1.5092, following Moodys downgrade of UKs government rating Moodys said that expects sluggish growth to continue into the second half of the decade. The EURGBP rose near its 15-month highs early on Monday and is trading as of writing at 0.8726 amid weakness of the sterling.

In addition, the Japanese Yen lost on speculation the Prime Minister Shinzo Abe will appoint head of BOJ Haruhiko Kuroda, who favors monetary easing, NIKKEI on Monday climbed by 2.45% after talks about BOJ chef. At the same time the EURUSD rebounded up to 1.3235 from Fridays low at 1.3145 ahead of Italian election results with European indices surging at the time being. The EURJPY is hovering above 124.00, it opened with trading gap and is now fluctuating around 124.39.

Lastly, the Chinese HSBC PMI was lower than projected at 50.4 compared to a revised 52.3 the previous month, raising concerns about Chinas sustainable path towards recovery.

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