Forex Flash: EUR/USD to stay above 1.30 despite volatility – Commerzbank

Italy's political stalemate is hurting sentiment, with European stock markets easing and Spanish and Italian bond yields rising, while bunds are back in demand in their role as a safe haven. Also, short term volatilities have risen notably, but longer term volatilities have not really been affected yet. “This discrepancy can be explained by the fact that the FX market was relatively quick to price out the crisis following the ECB’s announcement of unlimited bond purchases. Positions were adjusted as a result: the market went long EUR. Short term these positions are now getting too hot for the participants as the uncertainty about the political future in Italy and thus the reform efforts in the country is rising”, wrote analyst Antje Praefcke, expecting the 1.30 mark to hold for the time being, “but short term the euro’s upside potential is limited with the risk concentrating on the downside – in particular against the background of positive data from the US”.