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Euro Price Outlook Worsens as Italian Politics Move Into Focus

Euro Price Outlook Worsens as Italian Politics Move Into Focus

Martin Essex, MSTA, Analyst

EUR price, news and analysis:

  • A threat by the leader of Italy’s right-wing League to break the EU’s fiscal rules could damage the Euro.
  • For now at least, traders will likely pay more attention to the sparring in Italy than to some modestly positive economic data from the Eurozone.

Euro price at risk from Italian politics

A call by Matteo Salvini, who leads the right-wing League party in Italy, for the Italian government to be ready to break the EU’s debt ceiling of 3% of GDP and raise the country’s debt to 140% of GDP if necessary could undermine the Euro in the days ahead.

Salvini, who is also one of Italy’s deputy prime ministers, is currently campaigning for the European Parliament elections on May 26 and was immediately criticized by Luigi Di Maio, who leads the anti-establishment 5-Star Movement.

The two parties are currently coalition partners but Di Maio, who is deputy prime minister too, said Salvini was being “pretty irresponsible” to create market tensions by “shooting off” about increasing the country’s already high debt.

If this sparring continues, it could well weaken the Euro despite some positive Eurozone data released Wednesday and reports that US President Donald Trump is expected to delay a decision on tariffs on imported cars and parts by up to six months that lifted EURUSD late in the European day.

EURUSD Price Chart, Hourly Timeframe (May 8-15, 2019)

Latest EURUSD price chart.

Chart by IG (You can click on it for a larger image)

You can find a technical view on the outlook for the Euro here

In Germany, flash first-quarter GDP data released Wednesday showed a 0.4% increase quarter/quarter after a flat reading in the previous quarter – although year/year figures showed a drop in growth to 0.6% from 0.9%. As for the Eurozone as a whole, data released later revealed that growth doubled to 0.4% quarter/quarter and was stable at 1.2% year/year.

This more optimistic economic data will likely be ignored though as risk appetite remains poor, prompting money to flow into safe havens such as German government bonds. Bund yields were lower in almost all maturities Wednesday, with the 10-year yield hitting its lowest level since September 2016 before rallying on the auto tariffs news.

Find out here how the Euro was affected by the last Eurozone debt crisis and how recent developments look worryingly similar

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--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex

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

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