Forex Flash: EUR/USD upside subsides – BTMU

Bank of Tokyo Mitsubishi UFJ analysts believe that EUR/USD upside has subsided and they are neutral on the pair looking forward and see a range of 1.3250-3650.

They note that the Euro has stabilized over the past week after strengthening through early 2013. They see that Euro upside momentum has eased over the past week in part reflecting a re-widening of the Eurozone sovereign credit risk premium. Further, political uncertainty has risen in both Italy and Spain.

They see that the latest public opinion polls will be closely assessed heading into the upcoming Italian elections on the 24th and 25th of February and should former PM Berlusconi’s People of Freedom party continue to see its popularity increase, they feel that it would serve to increase the probability of a more unstable government forming weighing upon the Euro.

The Euro has also lost upward momentum following today’s press conference from ECB President Draghi at which he displayed a less upbeat economic assessment stressing the importance of maintaining an accommodative policy stance. While the ECB still views risks to inflation as broadly balanced at present, it did specifically acknowledge that further Euro appreciation is one of two main downside risks. They finish by writing, “The ECB also acknowledged it will continue to closely watch money market conditions and their impact on monetary policy. Overall, we believe that the ECB has signalled to the market that it will be more sensitive to further Euro and Eurozone short-rate upside ahead which should help to stabilize the Euro in the near-term.”