Euro Rallies Despite Italian Political Issue

The EUR/USD rebounded after early session weakness. The market was under pressure after Italy’s Prime Minister Mario Monti said he would step down once the 2013 budget passes. Although investors were initially worried about who would take control amid the country’s debt crisis, technical factors took over and the market reversed course to the upside. 

Today’s action suggests oversold conditions may drive this market higher for 1 to 2 days. The upside target is 1.3000. Sellers may show up at this price if they decide that Italy’s political issues may hurt the Euro Zone’s ability to pull out of the debt crisis. The issue with Italy may even cause Spain to reconsider asking for financial aid. Although any problems may not be apparent at this time,Italy could become an issue once the political process begins.

The GBP/USD was the big mover on Monday for no apparently strong reason. Improvement in the Euro may have triggered a short-covering rally, or optimism ahead of a key speech by Bank of England Governor King. Traders will be listening to how he explains the expected weakness in the economy and whether he offers any hints as to how the central bank will handle the possibility of additional stimulus.

Although the Forex pair did not complete a normal retracement as anticipated last week, today’s momentum suggests that the market may have enough power to take out the most recent top at 1.6130. A move through this price will turn the main trend up on the daily chart.

The weaker dollar and oversold technical indicators contributed to a sharp rise in February Gold. Last week’s trading action saw both a large drop and a closing price reversal bottom on Friday. Today’s action represents a follow-through rally, suggesting the market is poised for a retracement of the break from $1757.00 to $1684.10. The first upside target zone is $1720.60 to $1729.21. Since the main trend is down, short-sellers may re-emerge in this zone.

January Crude Oil continued to feel selling pressure mostly due to the uncertainty over the fiscal cliff and its potential impact on the economy. With oversupply continuing to be the key issue, traders are worried that the inability to reach a compromise agreement will send the U.S.economy into recession.

The short-term range is $85.36 to $90.33 with a mid-point at $87.85. Since the market is trading under this pivot price, there is a bias to the downside. The longer the market trades in a range, the greater the expected volatility once it breaks out. At this time, it looks as if it is going to be testing support soon.