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Euro Dips then Rips After Irish PM Signals Referendum

Euro Dips then Rips After Irish PM Signals Referendum

Christopher Vecchio, CFA, Senior Strategist

THE TAKEAWAY: [Irish PM Kenny Warns of Referendum ] > [Ireland Closed out of Future Euro-zone Bailouts] > [EURUSD Spike Bearish, Sharp Bullish Rebound]

Shortly after 15:00 GMT, Irish Prime Minister Enda Kenny announced that the government would call a referendum on the Euro-zone fiscal compact. This was an outcome that European leaders had hoped to avoid, given Ireland’s history of dealing with referendums: the Irish people vetoed the Nice and Lisbon treaties on first pass (concessions had to be made for the votes to pass on a second run).

While an Irish vote of “No” on the referendum wouldn’t nullify the Euro-zone fiscal compact – only 12 members are required to ratify it – there are indeed other consequences. As a symbol of European solidarity, a rejection of the fiscal company would be a symbolic vote against the Euro-zone, European leaders have warned. Additionally, and more importantly, if Ireland votes down the fiscal compact, they will be withheld from future Euro-zone bailouts given the current structure of the region’s bailout mechanism.

EURUSD 1-min Chart: February 28, 2012

Euro_Dips_then_Rips_After_Irish_PM_Signals_Referendum_body_Picture_1.png, Euro Dips then Rips After Irish PM Signals Referendum

Charts Created using Marketscope – Prepared by Christopher Vecchio

While the EURUSD was under immense pressure following the news – the pair moved from within 15-pips of its daily high to its daily low within twenty minutes. However, be it month-end rebalancing or markets pricing in the European Central Bank’s long-term refinancing operation, the EURUSD quickly rebounded after dipping as low as 1.3391. At the time this report was written, the pair traded at 1.3457, slightly lower than the rebound high of 1.3470.

--- Written by Christopher Vecchio, Currency Analyst

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