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Italy’s austerity challenged by election votes

Italy’s austerity challenged by election votes

Italy will test markets today with the sale of long-term debt after borrowing costs rose to the highest in 4 months yesterday as inconclusive elections triggered renewed concern Europe’s debt crisis may deepen. This week’s vote produced a hung parliament, with comedian Beppe Grillo’s anti-austerity movement winning more than 25% of the popular vote, creating the risk of another election later this year. The outcome raises the chance for prolonged uncertainty, putting Italy’s sovereign credit rating at risk for a downgrade, Moody’s Investors Service said today. The surprising outcome of the vote may force Italy’s President Giorgio Napolitano to call new elections if the coalition led by Democratic Party leader Pier Luigi Bersani, who won the Chamber of Deputies by a thin margin, fails to form a government.

Meanwhile, Barratt Developments, the U.K.’s largest homebuilder by volume, said first-half profit more than doubled as the company reduced costs and margins improved. U.K. house-construction companies are reporting increasing sales of new homes and higher average prices, resulting in improved profitability after a slump during the global recession in 2008. Homebuilders have also widened their margins after focusing more on houses and developing land acquired at discounts during the global financial crisis.

On the FX markets, GBP/USD settled in minor negative territory as risk-averse sentiment dominated the price action as market participants continued to assess the implications of the election outcome in Italy. In terms of technical levels, supports are seen at the 21DMA lower Bollinger level at 1.5104 and then at 1.5073, which once broken opens the door towards the July 12th 2010 low at 1.4949. On the other hand, resistance levels are seen at the 10DMA line at 1.5387 and then at the 38% retracement of this month’s sell-off at 1.5381.

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