TALKING POINTS – EURO, ITALY INDUSTRIAL DATA, EU GROWTH
- Euro likely will fall on weak industrial production data
- Italy economic reports have been weak and concerning
- Euro set to fall as 2019 headwinds blow across Europe
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The Euro may dip as the Italian government prepares to reveal its industrial production data that will likely fall short of forecasts. The current prediction stands at 0.4% with the previous showing 1.0% growth. General economic reports have broadly shown stagnant or disappointing results with the country experiencing a contraction in the third quarter.
To no surprise, this stoked fears that a recessionary storm might be brewing on the horizon. This comes amid forecasts of slower European growth and fears that the upcoming EU parliamentary elections will exacerbate regional political fragmentation. This may drive capital flows out of European assets, particularly those that are already viewed as very risky. In this environment, the Euro is likely to suffer.
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This comes on top of the government’s recent attempt to pass a controversial 2.4% budget deficit that rattled markets for the latter half of 2018. Why this data is more important now than before has to do with the state of Italy’s economy. If the numbers indicate a slowdown and Italy does indeed undergo a recession, Brussels would likely demand a revision of the already watered-down budget. The Italian government will not likely back down, and the negotiations will re-start, only with recessionary pressure weighing on the talks.
The fear of Italy undergoing a recession has been a concern among investors who have been perceiving Italian investment as a greater risk. The most obvious manifestation of investor confidence dwindling in the Italian government can be seen by the widening spread between Italian and German 10-year bond yields. Between May and time of writing, they have widened over 100%.
Spread Between Italian and German 10-Year Bond Yields – Daily Chart
Looking ahead, the Euro may have some growing pains as markets develop their Euro trend projections for 2019. Eurozone unemployment and France’s consumer confidence are scheduled to be released on Wednesday. The latter’s data will be particularly interesting, given the yellow vests protests and scandal over how Macron’s revised budget deficit may be violating budgetary laws.
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--- Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com
To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter