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Euro in Limbo After Italian Election Fails to Yield Majority Leader

Euro in Limbo After Italian Election Fails to Yield Majority Leader

Dylan Jusino,

Talking Points:

- Luigi Di Maio’s Five Star Movement takes 1/3 of the vote while the Lega party trails with 17.5%

- The rise of populist parties in Italy causes political gridlock

- See the DailyFX Economic Calendar for upcoming economic data and for a schedule of live coverage see the DailyFX Webinar Calendar

Five Star Movement Takes Biggest Chunk of the Vote

Yesterday, Angela Markel managed to secure her fourth term as Germany’s Chancellor. Simultaneous, Italians headed to the polls to cast their vote for the next prime minister of Italy. Unfortunately, with most votes counted, neither leaders Luigi Di Maio of Five Star Movement nor Matteo Salvini of the Lega party managed to secure a enough seats to govern the nation. Although, Maio came close with the a third of the vote going to his party. However, it is the League leader Salvini along with former Prime Minister Silvio Berlusconi who are expected to take the majority of seats in the lower house of parliament.

Still, it may be a slow-moving process before a new government is established. Earlier today, we heard from Maio and Salvini neither of which was willing to concede as they felt equally capable of leading the nation. The nation was largely divided as the latest figures show Five Star taking 32.5% of the vote most of which came from the Italy’s south. While Lega took 17.5% coming mostly from the north. And right behind Lega came Silvio Berlusconi’s Forza Italia party which garnered 14% of the vote.

The obvious result is that no single party has enough votes to rule alone. Although, the underlying theme is the rise in popularity of populist parties among voters. Similarly, this was the case with the United Kingdom’s Brexit vote and more recently, the U.S. election where Donald Trump claimed victory. Maio’s, who leads the Five Star Movement has captured the support of new voters in poorer regions of the country who are disgruntled with corruption, economic downturn, and immigration policies. Lega, the “far-right” coalition is expected to get between 248 and 268 seats which is below the 316 seats need for majority. Five Star movement is expected to take 216-236 seats. In all, Italy election has produced political gridlock which is largely due to the rise of populist parties.

Price Chart 1: EUR/USD 15-minute Chart (February 28 to March 5, 2018)

Euro in Limbo After Italian Election Fails to Yield Majority Leader

The results out of Italy have not had a lasting impact on the Euro primarily because no single party could claim majority. For the most part, that has been reflected in the EUR/USD as it has traded in a narrow range since yesterday. Also worth keeping in mind is the backdrop of heightened trade tensions which could potentially increase volatility. At the time that this was written EUR/USD traded slightly higher on the day at 1.2316, recovering its losses after gapping lower on Sunday.

--- Written by Dylan Jusino, DailyFX Research

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