Forex Flash: Italian new government will not have a major growth agenda - UBS

Italy will go to polls on 24/25 February and investors are paying attention as new government must follow ECB guidelines on austerity measures but the big concern is over growth initiatives. With a long term problem in Italy and no real growth measures, Italian new government will have big challenges recovering the market confidence.

"The sense in Brussels is that while the Monti government was pushing through important reforms during the first half of its rule, the efforts quickly faded in the second half," points UBS' analyst Beat Siegenthaler in a recent report. "Valuable momentum has thus been lost and the big risk now is that any new government will not have a major growth agenda. "

Regarding elections, "if the outcome was a relatively benign one, with a clear majority, then it would provide a boost," to the Euro, "but probably not a major one." On the other hand, If the elections were to surprise negatively, the impact on the market could be more substantial at least in the short term."

UBS keeps the view that at least in the short term any further normalization in the Eurozone is euro positive. The bank has 1.3700 as 1-month target.