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It’s been a drama filled weekend, with Austrian elections and the Troika starting a review of Greek debt amid political issues, with members of neo-Nazi party Golden Dawn being arrested. More importantly we have seen the Italian coalition in pieces, after centre-right leader Silvio Berlusconi pulled his ministers out of the cabinet. Amid this, we have seen increased prospects that the US is headed for a government shut-down, with the Republicans rejecting a spending bill passed in the Senate last week. EUR/JPY is the pair in play at present and the open on the inter-bank market has been quite dramatic, with it trading down 148 points, before rebounding modestly.
Long-term BTP (Italian bonds)
The Italian bond market should see a good level of sellers later today given the political drama that unfolded over the weekend. There will be a confidence vote on Wednesday and from there we will see the President and the Democratic Party leaders (Letta) trying to form a new majority coalition; in theory we could see the President dissolve parliament and call new elections.
Moves in USD/JPY suggest some tough headwinds for the Nikkei today. Traders will also have to look out for economic data in the shape of industrial production, retails sales (released at 09:50) and at 15:00 vehicle sales.
The market is keen to read tomorrow’s RBA statement to gauge a sense of the potential triggers for a rate cut later this year. However, on the docket today we get private sector credit, with the market expecting a 3.5% gain year-on-year. We also get China’s HSBC manufacturing PMI data and the market expects an improvement in this metric to 51.2 (from 50.1). The Chinese equity market is closed for most of this week. Key support is seen at 0.9286 (the 38.2% retracement of the recent rally from 0.8893 to 0.9539) and a break of here could see the pair testing 0.9100 in the near term.
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