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Forex: EUR/GBP reaches 16-month high

The euro took advantage of the broad weakness seen in pound on the back of the UK downgrade by Moody's with EUR/GBP climbing toward its strongest level in 16 months.

EUR/GBP briefly rose above the 0.8800 level and hit a high of 0.8812, last seen Oct 28, 2011. However, the cross lost momentum and pulled back to currently trade around 0.8775, where it trades 1.5% above its Friday's close and having left an upward opening gap.

According to Fan Yang, analyst at FXTimes, the EUR/GBP has been bullish since July 2012. "There is an Oct. 2011 resistance pivot at 0.8831. Above that, we have the 0.90 handle, and the 0.9082 2011-high to anticipate resistance", the analyst said.

Forex Flash: Race for the Italian Senate quite interesting – TD Securities

For the Senate, initial polls suggest 36% for Centre-left (Bersani), 30% for Centre-right (Berlusconi), 9% for Civic Choice (Monti) and 20% for Five Star (Grillo). "This leaves the race more interesting in the Senate, and still provides some risks, where the regional results are more important and we still don’t have enough details to make a conclusion", wrote TD Securities analysts, adding that "the early instant polls suggest Monti’s coalition could add another 21 seats if needed for a coalition government, so a market-friendly outcome would still be possible". Monti's results came in very disappointing, much below 15% expectations, while Grillo's 20% came in even higher than the 15% forecast. "Most votes require only a simple majority and Constitutional votes do require a super-majority, but one that is overcome if PD and PdL were to agree on any needed changes", they concluded.
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Forex Flash: Reflationary policy to push GDP higher in the Eurozone – Merrill Lynch

Merrill Lynch analysts expect reflationary policy to succeed in pushing GDP growth into positive territory, albeit at low levels, with a return to positive GDP growth QoQ by 3Q13. “But for reflation to translate to sustained growth, closer to trend levels, structural policies (bank restructuring, regulatory reforms and completion of the union) need to be implemented: „ Reflationary policy in Europe was more modest than in the US but has proved successful in arresting the economic decline”, they wrote, expecting positive growth in 2013 H2 and at 1% in 2014, as well as positive inflation in the Euro area albeit below the ECB’s 2% target.
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