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| Political Rumors Fly and EUR Bounces from Daily Low Posted: 07 Nov 2011 04:37 AM PST
Price movements in the EUR continue to be influenced by both politics and rumors flying over the newswires. The EUR bounced off of its lows this morning after it was reported that Italian Prime Minister Silvio Berlusconi could resign today. In Italy Reuters is reporting Berlusconi may resign as early as today. Markets moved higher as an exit by Berlusconi would improve sentient as the state of Italian politics is holding back any meaningful austerity measures to tackle the debt burden. Financial markets kept the pressure on Italy today with Italian 10-year BTP bonds rising to 6.66%. A level above 6% is considered unstable by many fixed income analysts. According to reports from the WSJ Greece is favoring replacing Greek Prime Minister George Papandreau with former ECB Vice President Lucas Papademos. A national unity government was agreed to for the implementation of the EU/IMF bailout package. Details remain sketchy and the political situation continues to weigh on equity markets as the London FTSE 100 is down 0.60%. Speculators reduced their overall bearish EUR bets by 25% according to the most recent COT report. Traders continues to favor short EUR positions though the market positioning appears to be more balanced which could allow for additional declines in the EUR/USD. The EUR/USD made a low this morning at 1.3680 before bouncing higher on rumors of Berlusconi's resignation. Today's low failed to move below the rising support line from the November 1st low on the hourly chart. A clean break below here will likely test the 1.3600 level. Initial resistance is found at 1.3830. By the way, after completing this forex blog post Berlusconi denied the rumors of his resignation via his facebook page.
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