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The single currency has had a rude awakening to the week, dropping significantly in the wake of the latest political drama out of Italy. Former PM Silvio Berlusconi is at the centre of the issue as his allies, led by Deputy Premier Angelino Alfano, plan to quit the cabinet. There will be a meeting in Rome as leaders try and salvage a solution. We will be keeping a close eye on peripheral yields for an indication of any change in sentiment.
On the data front it’s all about PMI numbers from the eurozone this week and investors will be keen to see if the recent improvement in economic data for the region continues. While no change in rates is expected at this week’s meeting, Mario Draghi’s press conference will be one to watch after his last comments suggested another LTRO might be on the cards.
As it stands we have seen some sharp moves in euro crosses, with EUR/JPY being one of the biggest movers. The safe-haven trade has really played into the hands of the yen. On the Japan front, PM Shinzo Abe is expected to announce the sales tax hike tomorrow. Finance Minister Aso was also on the wires saying Japan is not urgently considering a corporate tax rate cut. Unless Japan also announces a definitive plan to counter the impact of the sales tax hike then this will only result in further strength in the yen. The BoJ is also due out at the end of the week with no major surprises expected, although a small camp is hoping for stimulus to counter the sales tax hike.
There is an uptrend on the daily chart running from April which comes in at around 131.3. This level also coincides with the 100-day moving average and has swiftly turned into key support. A daily close below this here will be ideal for initiating short positions and we’ll be targeting a move to 130 in the near term. Stops could be placed at 132.3 which is just above previous resistance.
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