Forex Flash: EUR under siege as Italy continues to foment risk – Westpac

According to the Westpac Strategy Team, “The EUR seems unlikely to recover much further with 1.32/1.3300 seen as an ideal zone to initiate shorts for a bigger sell-off down to the 1.27/1.2800 zone.” Moreover, discussions for a grand coalition in Italy will likely last weeks and may not yield much. Fresh elections may be called but that will only occur after election laws are re-written. Yet the Italian parliament does not convene until 15 March.

The bottom line is that the odds a more market friendly Italian government is installed in the very near-term appear small and overall key event risks in coming sessions do not appear helpful to EUR. Draghi is sure to tone down the “positive contagion” commentary and given the stall in the Feb Eurozone PMI’s, he should emphasize that easy monetary conditions are here to stay for a while.

Ultimately, “He is likely to reiterate that the ECB’s OMT remains in place and ready for use but is likely to emphasize a tough love approach - recipients must sign up to reform and austerity.” the team predicts.