The bloc currency has stared the week in a firmer tone, hovering over the mid 1.32s after dipping to multi-week lows on last Friday in the region of 1.3140/45. While waiting for the results from the Italian parliamentary elections, the consensus among the FX community is that practically any result ruling out the presence of former PM Silvio Berlusconi would be supportive of the EUR/USD, with the ideal scenario being a victory of the centre-left candidate, Pier Luigi Bersani, entering into a coalition with the technocrat Mario Monti.
… Life beyond the elections
On the short-term horizon when these Italian elections have passed, the next barrier waiting for the euro-bulls would be a tougher one: the U.S. "sequester", where automatic spending cuts worth $1.2 trillion would not only jeopardize the late recovery of the U.S. economy but also axe thousands of jobs. It would take the Democrats and Republicans to come to an agreement on the very last minute to avoid the situation, something which is pretty unlikely at the moment, as seen by the recent radio silence from both parties.
Furthermore, as long as the uncertainty remains, the USD is posed to gather more traction, exposing the cross to further downside. However, this point contrasts with Fed intentions - according to the last FOMC minutes - to tamper or halt the ongoing QE programme sooner that the previously stated, as in the case of the U.S. jumping off the cliff, more stimulus seem mandatory thus plotting against US dollar strength.
So let's assume a market-friendly results from the Italian elections this afternoon. The euro would initially find resistance in the area of 1.3300/25, home of the 23.6% Fibonacci retracement of the move up from July 2012 lows - February 2013 tops, the 7-month uptrend and the top of the cloud. Further buying interest would then expose 2012 highs at 1.3485, ahead of 1.3520 (high February 13th) en route to 2013 tops at 1.3711