EUR/USD

EUR/USD broke through a long standing support trend line a week ago, and the news from Europe has been predominantly negative so there’s no real explanation for the forex pair’s behavior – particularly given the euro has lost ground against most other currencies.

The current inability of the Italian voting public to elect a new government has once again raised fears that Italy could find itself requesting European Central Bank assistance, which could in turn trigger a similar request from the Spanish government.

It is likely that Italy will be without a government with controlling power for some time, and the markets will discount the creditworthiness of Italian debt until they have a government able to make tough and sometimes unpopular decisions.

The fact that scandal-ridden Silvio Berlusconi has managed to gain such a large percentage of the votes has caught many by surprise, and although he does not have enough to gain control on his own it is possible that he would be necessary for a coalition government.

One of Mr Berlusconi’s main vote-winners was his anti-austerity rhetoric, and it seems likely that he’d continue to take this stance in government. This of course flies in the face of the general Eurozone opinion on how best to tackle the fiscal issue currently plaguing Europe.