Forex Flash: Lingering uncertainly in Italy could extend risk-off moves – Deutsche Bank

Late on Monday politicians were already calling for another poll to break the deadlock, while others expressed the fear that the Five Star Movement would only gain in strength if another election was called which might prompt Bersani to try to form a Government somehow. Angelino Alfano, the People of Liberty secretary, said that the lower house result was within the "margin of error" and demanded a review of the results.

According to Macro Strategy Analysts J. Reid and C. Tan at Deutsche Bank, “should new elections be necessary it is possible that the Italian President could appoint a caretaker PM to change the electoral law to increase the likelihood of a definitive result in a new election, however it is worth noting that the parties were unable to agree modifications in the electoral law last year.”

Overall it now looks like we will get our "risk-off" February investors have been expecting due to the Italian elections but our view of a "risk back on" March now looks threatened by the prospects of a stalemate and weeks of uncertainty in Italy.