Inside the Hourglass,
Sovereign states must increasingly feel as though their countries are built upon the bedrock of the sand in a rapidly shrinking hourglass; assuming a position in an ever-collapsing pool, occasionally colliding with each other and frequently going under. Today was the turn of Euro to take a turn for the worse. Markets reacted badly to Italy’s delay in publishing their fiscal spending plan yesterday. Selling Italian assets instruments in their billions, equity markets tumbled with bond yields hitting fresh highs. The Euro was also hampered by the perceived political risk within Italy, allowing the value of the Euro against the Dollar to fall through 1.17. With the announcement that the budget deficit will now only be curtailed to 2.4% (instead of a promised 1.9%), the Euro lost further value with a loss of value equivalent to 1.84% in 48 hours. The revised fiscal expansion by the newly formed coalition suggested to markets that the more dominant League party was succumbing to populist pressure rebelling against the Eurozone’s bias towards austerity and fiscal responsibility. With EURUSD breaking below 1.16 once again, the value of 1 Pound against the Dollar also dropped bearishly towards 1.3000. Considerable resistance was found at this level, forcing a sharp and immediate devaluation of the US Dollar. For now, the drama in Italy still appears largely contained within the borders of the Mediterranean, stopping short of the rest of mainland Europe. This is apparent whilst domestic bonds rally and the stock market loses as much as 4% on the day. However, the risk of contagion cannot be continually underplayed as it was post-Brexit. If Italy falls in either direction, it could still spell disaster for the Eurozone.
Discussion and Analysis by Charles Porter
Click Here to Subscribe to the SGM-FX Newsletter
A weaker Dollar: Trump vs. Powell The Dollar continued to lose ground yesterday as the truce between Israel and Iran appeared to continue to hold. There has been a noticeable return to focus upon macro and monetary influences in major currency pairs. Yesterday, Fed Chair Jay Powell provided his semi-annual monetary policy report before the […]
Next level EURUSD has managed a relatively smooth ascent to its current levels, around 1.18. That is despite significant resistance levels, most notably around 1.17. A large collection of option strike prices gathered around this key level and the price history of the pair shows us its significance. Sustained closes above this level since last […]
Whiplash A highly volatile start to yesterday’s trading session saw a flight to safety in markets. Despite the Dollar having lost much of its appeal as a safe haven lately, there was still an identifiable USD bid prior to and during the European open. We have identified recently how markets have clearly differentiated between general […]