The foreign exchange market in recent months has not reacted significantly to either macroeconomic data or political events (except the British pound). The expected volatility has recently risen slightly after the escalation of the trade war, and today Italy is again in the center of attention.
Italy is an economy that can get into recession this year. According to the forecasts of the International Monetary Fund, GDP growth in 2019 may be at the level of 0.1%. in relation to 2018. It is therefore hardly surprising that for the political purpose, but also for the sake of the economy, declarations have been made today which may lead to breaking the fiscal rules of the European Union.
Italian Deputy Prime Minister Matteo Salvini, who was quoted today by Reuters, was to say in Verona: “If we need to break some limits, like the 3% (deficit to GDP) or 130-140% (debt to GDP ratio), we’re ready to go ahead. Until we arrive at 5% unemployment, we will spend everything that we should and if someone in Brussels complains, that won’t be our concern”. Such an approach may once again be met with harsh criticism of the European Union, which may impose sanctions on Italy, which was already mentioned in November last year.
The above quote from the deputy prime minister had a significant impact on the Italian debt market. Prices of Italian 2-year bonds collapsed and yields exceeded 0.7% and have risen to the highest level in three months.
Chart: EUR/USD, D1. Conotoxia trading platform.
EUR/USD currency pair reacted with a decline in information coming from southern Europe, going back to around 1.1200. Therefore, apart from the line drawn through the recent tops, the key resistance for the currency pair also becomes around 1.1260, where the local double top was created. Meanwhile, the nearest support may be located at 1.1177 level.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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