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Euro recover as markets nervously eye Italy

Euro recover as markets nervously eye Italy

Investors are nervous over whether the political gridlock that emerged from the Italian elections could hurt euro zone growth, and if support from the European Central Bank for a nation in trouble can be used if there’s no workable government.  A raft of euro zone officials are due to make public speeches during the day which will be closely watched, while limited data on euro area inflation for January and the latest German unemployment data for February are unlikely to have much impact. Meanwhile markets were supported by reassuring comments from U.S. Federal Reserve Chairman Ben Bernanke on continued monetary easing, and Wednesday’s smooth debt sale by Italy.

Meanwhile, In the U.K., consumer confidence held steady this month as optimism about personal finances rose to the highest in almost two years, GfK NOP Ltd. said. It maintained January’s gains, though sentiment remained low by historic standards. The Bank of England forecasts a “slow but sustained” recovery for the economy this year. Still, consumers may remain under pressure from rising energy bills and accelerating inflation.

On the FX Markets, GBP/USD settled the session higher as market participants remained wary of potential escalation of the Eurozone sovereign debt crisis amid the instability in Italy and sought to diversify exposure to the joint currency bloc. In terms of UK related commentary, although the ONS in the UK left its estimate for the Q4 unchanged at -0.3%, the agency said that growth in the Q3 was 1% rather than 0.9% and that the economy shrank in the Q1 of 2012 not by 0.2% but by just 0.1%. The changes pushed up the ONS estimate for annual 2012 growth from zero to 0.2%. BoE’s Bean said that discussions about charging banks to deposit money were “blue-sky thinking” and the Bank had no plan to introduce negative interest rates now. As a reminder, BoE’s Tucker said on Tuesday that the central bank was considering whether negative interest rates were a feasible way to boost the economy. In terms of technical levels, supports are seen at 1.5033, 1.4949 and then at 1.4873. On the other hand, resistance levels are seen at the 10DMA line at 1.5296, 1.5330 and then at 1.5452.

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