Article by ForexTime
European politics will dominate the headlines the week ahead as Italian and Austrian citizens head to the polls today.
Italians are voting on whether to back reforms of the country’s constitution, a proposal by Matteo Renzi that would reduce the size of the upper house of parliament from 315 senators to just 100 in an effort to make proposed legislations only require the approval of the lower house to become law. Although this may sound insignificant, the implications are far more complicated, not just for Italy but the Eurozone, as a “no vote” likely lead the resignation of Renzi and an early election that opens the door for Five Star Movement to come into power and most likely call for a referendum on leaving the euro.
Austria, one of the most peaceful countries in the world will also test the rise of populism that led Donald Trump’s presidential election win and Britons vote to leave the EU. Austrians today should choose between left-wing Alexander Van der Bellen and far-right Nobert Hofer who also supported a referendum on his country’s membership in the EU.
Euro traders should fasten their seatbelts on Monday, as we’re likely to see big moves on either side. A no-vote in Italy, although priced in to some extent, will likely lead EURUSD to break below 1.05 especially if supported by far-right win in Austria, and parity will become the next target for Euro bears, however if things came the opposite way around, this will allow the Euro to reduce the risk premium priced in the currency and a short squeeze that could send the pair above 1.08.
Will the ECB announce another round of QE?
Three central banks are meeting the week ahead, the Reserve Bank of Australia, Bank of Canada, and most importantly the European Central Bank. The €80 billion asset purchase program by the ECB will end in March 2017 and the key question is going to be whether the central bank will continue buying bonds at the same pace or reduce the amount in a similar tactic to the U.S. Fed, which started reducing its monthly purchases by $10 billion in December 2013. The Italian referendum outcome will also play a major role in ECB’s decision as a no vote will worsen the outlook for major Italian banks and lead to sell-off in Italian debt forcing the central bank to intervene to sustain any potential banking crisis.
Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.
Article by ForexTime
ForexTime Ltd (FXTM) is an award winning international online forex broker regulated by CySEC 185/12 www.forextime.com