In the wake of the turmoil of the Italian election results which have caused Italian equities to plunge nearly 5% at the open while Italian credit spreads spiked, the Italian regulator is considering a short selling ban. The regulator stated that the bourse will monitor exchanges and use all instruments to calm the markets.

A ban on short selling could provide temporary halt on equities but may result in further selling of the EUR/USD as speculators turn to the currency markets where no such regulation exists. The EUR/USD has been on a seesaw ride in early European trade as it absorbed a wave after wave of selling but managed to remain above the psychologically key 1.3000 level for the time being.

Bargain hunting demand from the Middle East as well as end of the month sovereign fund flows have acted as counterpoint to the massive speculative selling that the pair has seen so far. The EUR/USD has been able to stabilize near the 1.3060 level but if the short selling ban goes into an effect it could once again see the selling resume as shorts turn to currencies to express their bearish view.

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