We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
EUR/USD
Bullish
Oil - US Crude
Bullish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Wall Street
Bullish
Gold
Mixed
GBP/USD
Bullish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
USD/JPY
Bearish
More View more
Real Time News
  • The US Dollar is pressured as rising coronavirus cases fail to dent 2021 GDP bets. Could the Singapore Dollar, Indonesian Rupiah, Philippine Peso and Malaysian Ringgit rise? Find out from @ddubrovskyFX here:https://t.co/u1qhaIGGoC https://t.co/O2i6DZLkIB
  • Commodities Update: As of 02:00, these are your best and worst performers based on the London trading schedule: Gold: -0.02% Silver: -0.02% Oil - US Crude: -0.36% View the performance of all markets via https://www.dailyfx.com/forex-rates#commodities https://t.co/8fnXlqvZEz
  • Forex Update: As of 02:00, these are your best and worst performers based on the London trading schedule: 🇪🇺EUR: 0.07% 🇨🇭CHF: 0.05% 🇬🇧GBP: 0.01% 🇯🇵JPY: -0.06% 🇦🇺AUD: -0.09% 🇳🇿NZD: -0.09% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/T8ma15KmYS
  • RT @DanielGMoss: #JacindaArdern’s balancing act with China may fuel further gains for the trade-sensitive $NZD $AUDNZD Head and Shoulders…
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Ripple are long at 96.85%, while traders in US 500 are at opposite extremes with 73.24%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/tUOYKl0cyo
  • Okay so what's China CPI today? Its changed like 3 times on Bloomberg
  • Since the stock market bottomed back in March, the S&P 500 has gone on to climb over 40%. Get your S&P500 market update from @FxWestwater here: https://t.co/Ff7iHAUObN https://t.co/bLO6xva4Fw
  • 🇦🇺 Investment Lending for Homes (MAY) Actual: -15.6% Previous: -4.2% https://www.dailyfx.com/economic-calendar#2020-07-09
  • 🇦🇺 Home Loans MoM (MAY) Actual: -10.2% Previous: -5.0% https://www.dailyfx.com/economic-calendar#2020-07-09
  • 🇨🇳 Inflation Rate MoM (JUN) Actual: -0.1% Expected: 0% Previous: -0.8% https://www.dailyfx.com/economic-calendar#2020-07-09
Euro Rallying as Italian Referendum Dashes MS5 Hopes

Euro Rallying as Italian Referendum Dashes MS5 Hopes

2016-12-05 13:00:00
Christopher Vecchio, CFA, Senior Strategist
Share:

Talking Points:

- EUR/USD dropped around -1.5% around the initial referendum results as anticipated, but markets have been quick to perk up.

- Implications for Italian electoral law may have made the Euro safer from an "Italeave."

- DXY Index weighed heavily by EUR/USD turnaround; US ISM Services/Non-Manufacturing due later today.

Even as the UK Supreme Court Brexit hearings get underway in London, the market remains focused on Rome. The resounding defeat by a margin of either 59-41 or 60-40 (votes are still being tallied) was a strong enough signal to provoke Italian Prime Minister Matteo Renzi to resign following yesterday's Italian constitutional referendum.

While the Euro sold off around -1.5% across the board initially as anticipated, the ramifications of the vote are only now being digested, which are, somewhat perversely, contributing to the Euro's sharp turnaround this morning. As I wrote in the Euro weekly trading forecast ahead of the Italian referendum, "Even in the event of Renzi resigning and with new elections resulting, political gridlock would remain, preventing any significant reform – including legislation to take Italy out of the Euro, if say the Five Star Movement came to power in the next elections."

In effect, the results of the Italian referendum may have made the Euro safer from an "Italeave" (or "Quitaly," or "Exitaly," or whatever terrible euphemism you'd like!) due to the implications for Italian electoral law. That is to say, Italy doesn't have an electoral law at the moment by which a Euroskeptic party to come to power and provoke an "Italeave." This is because the recently rejected constitutional referendum was one of two parts to reforming the Italian legislature.

Part one of the reform, the Italicum, agreed upon over the summer, would reform the Chamber of Deputies (the Italian House of Representatives or Parliament, for those reading in the US or UK) to allow a 'first past the post' winner, the post being 40%, and the winner receiving an allotment of 340 seats (out of a possible 618) automatically. This would give the winning party a clear majority and the runway to enact sweeping legislative reform. Not any longer, it would appear.

The Italicum was agreed upon in this form when Italian PM Renzi's Democratic Party appeared to be far enough ahead in the polls to ward off the Five Star Movement's (MS5 Party) advance; yet this electoral apparatus, if had been implemented, would have paved a clear path for the MS5 Party to gain control of the government via a majority in the Chamber of Deputies.

Instead, now that the constitutional referendum was shot down (the second of the two parts reforming the legislature; this was aimed at the Senate), the Italicum's proposed reform is not going to be implemented. Instead, because Italy now lacks electoral law, the Italicum will need to be renegotiated. It seems highly likely that the old system - one of proportional representation that has contributed to Italy's 63 governments since the end of WWII - will stay as a countermeasure to the rising tide of economic populism in Europe.

While the old system of proportional representation may mean gridlock will continue, it also means that governments will continue to need to be formed by coalitions. This may be the case in the next election, where no single party has a majority in popularity polls at present time; the MS5 may very-well achieve a plurality, but given its stance on leaving the EU whilst refusing to form a coalition with other parties means that the MS5 Party may never actually see one of its members become Italian prime minister.

Looking at the big picture, it's clear that the Five Start Movement won the battle to get Italian PM Renzi out of power. But in doing so, it may have lost the war to achieve ultimate power itself, closing off a pathway for it to take Italy out of the Euro and the European Union.

See the above video for a technical review of the DXY Index, EUR/USD, GBP/USD, AUD/USD, USD/JPY, EUR/GBP, EUR/JPY, and GBP/JPY.

Read more: EUR/USD Set for Volatility with Italian Referendum, ECB Rate Decision in Sight

--- Written by Christopher Vecchio, Senior Currency Strategist

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

To be added to Christopher's e-mail distribution list, please fill out this form

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES

News & Analysis at your fingertips.