The euro weakened after some media reports said Berlusconi's center-right alliance was leading in the race for the Senate. Earlier, media reports said exit polls indicated a center-left coalition led by Democratic Party leader Pier Luigi Bersani was on track to win Italy's election.
Amid contradictory polls, EUR/USD fell back below the 1.3200 mark to a low of 1.3158, off from an intraday high of 1.3318. US stocks also pulled back as markets considering the possibility of a win by former prime minister Silvio Berlusconi.
"While U.S. policy and Italian political headlines have the potential to generate some volatility, in the near-term we lean towards overall strength in European currencies, as well as commodity and emerging currencies", said Nick Bennenbroek, Head of Currency Strategy at Wells Fargo Bank.
Euro fails to sustain gains
Technically speaking, hourly indicators have turned bearish although bigger time frames show a more neutral stance. A break below 1.3144, 6-week low scored on Friday, would expose the 1.3115/00 area (100-day SMA/psychological level) ahead of the 1.3070 level, which represents the 38.2% retracement of the 1.2041/1.3710 rally. On the flip side, the regain of 1.3300/20 (Feb 25 highs) is needed to ease the immediate pressure and re-focus 1.3500.
"After last week's EUR selloff which broke the 40-day moving average, the single currency still looks to be a better sell on rallies from a trading point of view", says the TD Securities team. "While the EUR (and the rest of the European currencies) have seen a decent bid since the opening of trading this week, selling rallies still looks like the better strategy unless we decisively get back above the 1.3340/50 zone".