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Euro Dollar Forecast: EUR/USD Risks to Resurface Amid Weekend Italian Election

Euro Dollar Forecast: EUR/USD Risks to Resurface Amid Weekend Italian Election

2020-01-24 09:10:00
Justin McQueen, Analyst
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EUR/USD Analysis and Talking Points

  • EUR/USD | Italian Concerns Resurface
  • Italian Regional Election in Focus
  • Snap Election to Put Euro on the Backfoot

EUR/USD | Italian Risks Resurface

Italy is back on the agenda for the Euro after 5 Star Party Leader Di Maio announced his decision to step down earlier this week. With this coming before a decisive regional election in Emilia-Romagna on Sunday, risk premium attached to Italy could be on the rise amid concerns over the stability of the 5SM + PD coalition.

EUR/USD MIXED
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of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 3% -1% 2%
Weekly 5% 20% 8%
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Emilia-Romagna is typically a centre-left stronghold and thus the PD party would be expected to win the regional election. However, given the sizeable lead in the national opinion polling for Salvini’s League party and with regional opinion polls showing the centre-left and centre-right are neck and neck, there is an increasingly risk that the centre-left rule could be replaced for the first time in over 70 years, which would mark a huge achievement for Salvini’s. In turn, this would heighten concerns that Italy could be on course for another election in the near-term thus placing pressure on the Euro, as well as Italian assets (FTSE MIB + BTPs).

Italian Regional Election Opinion Polling

Euro Dollar Forecast: EUR/USD Risks to Resurface Amid Weekend Italian Election

Italian Election Risks to Spark Wider Bund/BTP Spread

In recent months, foreign investors have stepped up their exposure to Italian debt, therefore rising risks that Italy could once again be heading back to the polls provides us with greater confidence a widening of the Bund/BTP spread towards 200bps will see Italian assets underperform, making EUR/JPY an attractive option on the downside.

Euro Dollar Forecast: EUR/USD Risks to Resurface Amid Weekend Italian Election

EUR/USD Price Chart: Daily Time Frame

Euro Dollar Forecast: EUR/USD Risks to Resurface Amid Weekend Italian Election

Source: IG Charts

--- Written by Justin McQueen, Market Analyst

Follow Justin on Twitter @JMcQueenFX

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