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Euro weakness to prevail – Gold to gain until Ben speaks – Feb 26

February 26, 2013

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We have seen a very uncertain start of the week. Initially, it seems all was going well as chances for Slivio Brelusconi’s Center-Right Party coming into lime light looked dim, but final outcome of the Italian with Berlusconi leading in Senate and getting very close in polls does not bode well. But, more importantly technocrat government headed by Mario Monti Centrist attracting 10 pct votes is clear sign frustration and rejection of austerity policy. 
Since no one is a clear winner if collation government is not formed then Italy is surely heading for another election. If we look at the recent election graph in Europe, one thing has become obvious that the Europeans hate this so called austerity policy and this is very a damaging trend in Europe because comedian Beppe Grillo attracted huge votes in the name of anti-austerity and anti-Euro. This could be waring shorts for Angela Merkel leading from front in all European affairs as Germany, which is major European member country next in line for election. We have seen similar resistance in Greece, France and Italy and Italian election suggest sign of worsening situation.  
With financial market’s focus once again likley to shift towards Europe since Italy could be facing hung Parliament and this will bring lot of confusion in the market. But another major events that begins today is the Bernanke testimony, as he will have to talk a lot and defend his quantitative easing policy due to recent Hawkish speeches by some of the FED members. FED minutes too was less Dovish. Keep in mind about one possibility that if Ben supports his FED members view, we could see sharp upward USD rally and GOLD falling like a nine-pin.  
It all indicates that if the uncertain situation lingers on in the coming days then Euro will be the whipping boy as Draghi’s therapy will become useless, as it may not work effectively, so ideally any bounce in Euro without a good reason will be opportunity to sell. 
A word about Yen, which is correcting, but be quick to take profit, as official announcement by government to appoint Kuroda as BOJ Governor should once again weaken the currency.  
However, we could be heading for another choppy day due to quite a few factors. 

EURO @ 1.3085 = Big levels to watch are 1.2920 and 1.3280. However, during the day top should be around 1.3120-40 and only break risk for 1.3170-80 zones.See risk for drop to 1.3040-50 zones that could stretch down to 1.3010 zones. 
GBP @ 1.5182 = GBP could test 1.5215-20 zones. Prefer selling if seen with STOPs 1.5260 for 75-80 pips 
JPY @ 92.41 = Bit tricky as needs to make another fall below 92.10 for 91.70. A move beyond 92.90 would risk for 93.50
AUD @ 1.0283 = 1.0320-30 looks tough to break, but needs to fall below 1.0245-50 for 1.0220 
GOLD @ $ 1594.80 = Italian uncertainty and BEN’s testimony are two factors supporting gold. Should find support around $ 1588-90 and $ 1584 may not surrender before Bernanke’s appearance. I will not be surprised to see a test of $ 1605-10 zones before Ben speaks. Important levels to watch on the down side is $ 1578 and $ 1620 on the upside 
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