In the analyst's view, continued political uncertainty could force Italy into accepting the terms of the OMT, in order to calm investors. "This may have limited downside in Euro-based pairs now; but don't be surprised by further downside over the coming weeks", he says.
"As a result, the EURUSD has broken the major uptrend off the July and November lows, breaking at 1.3200/20 yesterday, leading to a cataclysmic sell-off into the January swing lows at 1.2995/3035", Vecchio comments. "Although the EURUSD is near oversold conditions, we note that momentum amid political distress tends to supersede stretched technical indicators. If 1.2995 breaks, a move into 1.2875 and 1.2660 shouldn't be ruled out by the end of 1Q'13."
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