Yen strength turned to indiscriminate buying overnight with the Italian elections prompting a significant bout of risk aversion. Yen crosses slumped across the board as Italian politics continued to weigh on sentiment with projections indicating a chance of a hung parliament with Berlusconi’s party gaining support in the senate.
   
Given the Yen’s sustained path lower, buying activity prompted a short-squeeze with stops triggered along the way which only increased buying momentum.  The EURJPY pair led the charge lower falling around 600 pips to a 1-month low of 118.77.  Similar moves were noted across the board with the USDJPY breaking the downside of 91-figure for the first time in nearly a month. 

Whether we see a v-shaped recovery from Yen crosses remains to be seen, but one would expect a material bout of Yen strength may be more of a value proposition for Yen bears should we see some favourable news out of Italy.

Likewise, major currency moves reflected a night of broad risk aversion overnight; with safety flows directed towards the U.S dollar and the aforementioned Yen.

The Euro’s currently acting as a more rational barometer for Italian political uncertainty falling to fresh 1 ½ month lows against the greenback. Equities from both sides of the Atlantic also suffered solid losses with the Italian elections front and centre. Markets are clearly concerned the anti-austerity movement in Italy will derail efforts by Mario Monti’s technocrat government to put Italy back on the straight and narrow. 

The safe-haven play dictated much of the broader currency activity overnight, with the CAD leading the commodity bloc lower with the Aussie dollar close behind. We’ve seen the selling escalate after Yen crosses slid deeper into negative territory and in recent minutes broke the downside of support at 102.65. It’s apparent high-beta currencies like the Aussie remain vulnerable to further downside with markets concerned over how political fragmentation in Italy (Europe’s third largest economy) will disturb the relative stability across the entire Euro region.

Beside feedback from Italy, we shall be watching for news out of Japan with Prime Minister Abe expected to announce his nomination for the Bank of Japan top job this week.

Among a host of top-tier data points in the U.S this week, the most important short-term directive may perhaps be Fed Chairman Ben Bernanke’s testimony to the Senate Banking Committee This evening. Markets were thrown into a tizzy last week after the FOMC minutes for February revealed some members advocate the need to begin scaling back asset purchases.
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