The Italian elections gave the euro a harsh dose of reality. The lower house was won by the Pier Luigi Bersani’s centre-left Democratic Party (pro-reform), but the upper house also known as the senate provided an upset victory by Silvio Berlusconi’s party and just as important, the comedian Beppe Grillo’s strong showing prevented the Monti administration enough votes to form a coalition with Bersani.
FOCUS BACK TO EUROPE
The surprise outcome to the elections has brought back the focus back to Europe. This week, the European Commission forecasted economic growth to decline by 0.3% for 2013 and disturbingly had unemployment targets for Spain and Greece around 27%, Portugal at 17.3%, France at 10.7%, Italy at 11.6% and the euro area as a whole at 12.2%. Please note that the forecasts for the youth remain elevated for struggling southern periphery and we may see stronger protests and voter turnout in coming elections.
CHART LEVELS
The daily chart on euro/dollar (EUR/USD) highlights the key breakdown of bullish trend line that started from July of last year. The well-defined uptrend is being threatened and price may target 1.2885, which is the 50% retracement of the July 2012 low to 2012 high.
The key barrier is the psychological 1.30 level and if this is respected along with a very dovish testimony from Bernanke, we may see a retest of 1.3250 before bearish price action resumes.
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