Berlusconi Keeps Markets on Edge

Will he quit or wont he? Italys embattled Prime Minister, Silvio Berlusconi, faces a series of confidence votes in the coming days as the Italian bond market approaches distressed levels. CAD and NZD were the top performers Monday while CHF lagged badly, followed by EUR. Australias trade balance is a highlight of the Asia-Pacific session. Oil, gold, silver trades are added to EURUSD, EURJPY, USDCAD and AUDNZD. See below.

EUR/USD fell as low as 1.3681 but has rebounded almost a full cent higher on mixed signals from Italy. Berlusconi dismissed resignation rumours but a Tuesday confidence vote could spell the end of his government.

The market appeared to like the idea of the scandal-ridden PM stepping aside. Weighing on EUR was news of low buying interest in the latest bond issue from the EFSF. The issue priced at 104 basis points above the German benchmark versus 17 bps at the prior auction.

The bond market appears fed up with Italy as 10-year yields soared to a euro-record 6.68%. A rise above 7% led to the bailouts in the rest of the euro area.

Greece was expected to announce a new Prime Minister today but the decision has been pushed back to Tuesday with three candidates said to be in the running. For the euro, former ECB member Papademos would be the favoured choice but the decision is unlikely to spark a significant move.

EUR/CHF continued to soar after comments from the SNBs Hildebrand set off a round of rumours about a higher peg. The pair touched above 1.24 after trading as low as 1.2130 on Friday.

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The S&P 500 rose 0.6% to 1261 and gold climbed to $1793.

Asia-Pacific Preview

At 00:30 GMT, Australias trade balance is expected at +3.0B and the NZB business confidence survey will be released (prior -2.0). EU finance minister also continue to meet in Brussels.

Eastern Time (NY) is now 5 hours behind both GMT and London.