Italian Election Outcome Dents Euro

The common currency Euro dipped near to a 7-week low during Tuesday’s Asian trading session following the unexpected outcome of Italy’s Parliamentary elections. Though the center left party handily won the lower house of Parliament as political observers had anticipated it would, it has been projected that the upper house will be without a majority, meaning that a potentially deadlocked Italian parliament could pose a risk to and undermine the fragile economic reforms instituted by the Mario Monti government. Without a stable government in place to guide it, investors will be concerned that Italy’s economy will take a turn for the worse and bring the Eurozone down along with it.

As reported at 12:38 p.m. (JST) in Tokyo, the EUR/USD pair was trading at $1.3056, scratching back a few pips after dropping to a session low of $1.3042, the lowest price since early January. Currency strategists say there is support at around $1.3032, but a break would give Euro bears a serious play and pave the way for a test of $1.2998, the January 4th low. The EUR/JPY also dropped sharply, trading at a low of 118.74 Yen on Monday, a loss of 2.6% and the largest single day’s decline since May 2010; more recently the pair was trading at 120.16 Yen.