As concerns over Italy’s political turmoil intensified on Tuesday and Italian debt risks continued to rise sharply, equity markets were pummelled on the increasing likelihood of political and economic instability in the eurozone. Meanwhile, the euro currency extended its recent tumble, as might have been expected, while safe-haven assets like gold and the Japanese yen were given a strong boost.
Revived worries about the future of the European bloc along with a resulting risk-off market environment set the stage for heavy pressure on the euro and simultaneous support for the safe-haven yen. This combination prompted EUR/JPY to be among the major market movers on Tuesday, as the currency pair plunged to mark a new 11-month low just above the 125.00 handle.
In the process, EUR/JPY hit key support around the 125.50 price region, which previously served as major resistance throughout May of last year. Since its recent high above 137.00 in early February, EUR/JPY has been entrenched within a sharply descending trend as political and economic uncertainties have continued to plague eurozone member countries. While Tuesday’s strong sell-off that was driven by worrying developments in Italy may have been over-extended for the time being, escalating concerns regarding the prospects for Italy and the eurozone are unlikely to be short-lived. With any further significant breakdown below the noted 125.50 support area, the next major downside target resides around the key 122.50 support area.
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