Rabobank - "The market may be able to dismiss the weekend news that Fitch has cut Italy’s sovereign credit rating to BBB+ as a ‘catch-up’ move which brings it in line with the other two major credit ratings agencies. But, it is less easy to overlook the fact that two weeks after the elections Italy is no closer to forming a new workable government. News over the weekend that the 5-Star party is ready to outline to the President its aim to lead the next government is unlikely to be accepted by the other major parties. Nevertheless, it is a disconcerting factor for the markets in view of the likelihood that structural reform would be dropped. While sentiment in the Italian bond market has held up remarkably well in recent weeks, the political difficulties and associated risk that pro-reform momentum will slip is worthy of keeping the peripheral bond markets on the back foot in the immediately term and keeping the EUR in check. While EUR/USD has pushed above the 1.300 level again this morning the combination of Italian political difficulties and the better than expected US February payrolls release last Friday should make the going tough for EUR/USD bulls near term. On the back of the better than expected US labour market data for February we have edged lower our 1 to 6 mth EUR/USD forecasts to reflect the market’s improved expectations for US growth and the resultant push higher in US treasury yields. We now expect that EUR/USD could dip moderately to the 1.28 area on a 3 mth view (from a previous forecast of 1.30) though we maintain our view that over the next few weeks EUR/USD is likely to a maintain a jittery range around the EUR/USD1.29 to 1.32 region."