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Euro sinks as political uncertainties re-surface

Euro sinks as political uncertainties re-surface

The euro extended losses on Tuesday as political uncertainty in Italy and Spain prompted traders to take profits on the currency’s stellar gains so far this year, after it hit a 14-month high last week. Spanish Prime Minister Mariano Rajoy faced calls to resign over a corruption scandal, while in Italy the growing popularity of former premier Silvio Berlusconi was a worry for investors in the run-up to elections this month. Still, not many market players think potential political upheaval could derail the euro zone’s efforts to fix its debt problems. Traders said euro bulls were already starting to turn cautious in the lead-up to Thursday’s European Central Bank (ECB) policy meeting as well. Vecchio was referring to a recent repayment of a whopping 137 billion euros of ECB emergency loans, which slashed the amount of cash floating in the euro zone banking system.

On other news, British retail sales rose strongly in January, boosted by the popularity of tablet computers and smartphones while cheerier shoppers were also lured by special offers, a leading trade body said on Tuesday. The British Retail Consortium said the total value of goods sold was up 3 percent compared to January 2011 – the largest increase since September. It rose 1.5 percent in December.  On a like-for-like basis, which excludes new floorspace, sales were 1.9 percent higher. That was the fastest rise since December 2011 and followed a 0.3 percent tick-up in sales in December 2012.

On the FX Markets, GBP/USD settled the session higher, benefiting from safe-haven related flows and a weaker EUR which posted broad based losses as market participants speculated on a potentially dovish statement from Draghi later on in the week. In terms of UK related commentary, the Shadow MPC voted 6-3 for a surprise rate hike this Thursday – David Smith economics blog. One reason was that fiscal policy seemed even further off course than was previously believed, and risked damaging the credibility of all UK policy making. In terms of technical levels, supports are seen at 1.5636, 1.5612 which is the 21DMA lower Bollinger level and then at 1.5578. On the other hand, resistance levels are seen at the 10DMA line at 1.5780, the 200DMA line at 1.5891 and then at 1.5900.

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