How will the Italian budget developments affect the euro? Will the Pound hold?

How will the Italian budget developments affect the euro? Will the Pound hold?

How will the Italian budget developments affect the euro?

There are several factors weighing on euro. Perhaps the most important of these factors is the Italian budget, but there is also the dollar’s strength, the weak German data and the trade conflict and its negative impact on companies.

But why focus is turned towards the Italian politics among all these factors. Italian bonds yields doubled in five months and are expected to continue to rise to 4%. If we compare the 10-year German bonds yields and 10-year Italian bonds yields, we notice that the difference is 300 basis points, or 3%, which in turn signals serious concerns about the budget issue.

What is still encouraging right now, is that Italy does not wish so far to break away from the EU as much as trying to push to amend the Union’s laws on the deficit ceiling assigned to EU countries of 3% GDP.

Of course this is weakening the Euro, and I expect it to exert selling pressure in EURUSD to a retest of the 1.1430 and 1.1360 levels.

Will the Pound hold?

The pound retreated earlier this week after a British government spokesman pointed to obstacles that still hamper a deal in November.

The wave of optimism subsided and the possibility of No-deal Brexit returned back to weigh on the Sterling. But technically the Pound remains one of the strongest among the major currencies after the Dollar and Yen. Only a drop below 1.2920 can be seen as a negative sign as it will turn the bias back to Bearish.