FXstreet.com (Barcelona) - A quick look across this afternoons institutional research shows that while the markets seems to have gotten over the UK´s downgrade but the impact as a whole is still being considered. Meanwhile news of victory for Bersani in the Italian election has taken poll position and mirrors the sentiment behind the ´Bersani Trade´, today´s relief rally on the hope that Berlusconi is defeated.

EUR/USD

Michelle Moran of BAML highlights the general difficulty of determining whether Europe subscribes to a risk on or risk off strategies with the combination of the Italian elections, Spanish political instability and the UK downgrade. Meanwhile, Brown Brothers Harriman analysts note that the passive tightening of the Euro area monetary conditions does not appear to be as aggressive as it had appeared and this reduces the likelihood of offsetting ECB action. Danske Bank analysts note that in the Italian elections, Bersani is projected to win by a small margin. Nick Bennenbroek of Wells Fargo comments that the Euro has climbed as news of Berlusconi´s defeat moves towards confirmation. Kit Juckes of SocGen comments in a brief note that news of the pending victory for Bersani is risk friendly, alongside the Euro.

GBP/USD

Brown Brothers Harriman analysts are expecting the UK downgrade to follow a similar path as previously downgraded nations such as the US, Japan, France and Austria, in holding very little real term reaction. They warn that investors should not be surprised if agencies cut further following deeper cuts should the Government cut even further. Danske Bank analysts comments that despite the cut, the move is unlikely to have an impact on the UK sovereign bond yields, despite hurting the pound which fell to a 2 year low.

USD/JPY

Brown Brothers Harriman analysts note that the Abe government is expected to announce his nominations for the top positions at the BoJ, with local reports suggesting that moderately dovish Asian Development Bank head and former MOF official Kuroda may get the nod as governor. Nick Bennenbroek of Wells Fargo believes that the coming BoJ appointment, believed to be ADB Head Kuroda, should single further central bank easing in the coming months.

Macro

Brown Brothers Harriman analysts note that the Fed Chairman Bernanke is due to provide his semi-annual testimony on Tuesday and Wednesday and they expect him to help “correct” the reading of the recent FOMC minutes that some observers read as being quite hawkish, signally an early end to QE3. Elsewhere the note that the US Congress only has a few days to avert the Sequester, namely $1.2 tln deep cuts.