Italy's referendum to take center stage

Forex News and Events

A rejection of Italy's referendum will not spell disaster

This Sunday, Italian citizens will vote for a constitutional change in what is considered as the biggest European event since Brexit. This referendum marks an important turning point in Italy's political history. Italian Prime Minister Matteo Renzi is currently leading the “Yes” vote and has promised to resign if a “No” outcome prevails.

The main goal of this referendum is to allow the government to move forward more easily in its reforms. In practice, the change would mean a reduction in the number of senators from 315 to 100 and most of them would be appointed, rather than elected. Power will also become more centralised with authority move from the regions to the central government. Renzi argues that a more streamlined legislature is what Italy needs in order to pass the structural reforms that would boost the country's sluggish economy. The “No” side, which is being led by MS5 (the anti-EU Five Star Movement), believes that this would lead to the over-centralisation of power.

We are expecting the referendum to be rejected on the back of a swelling global populist tide. 

National sovereignty is always a difficult and sensitive issue, now more than ever, and when it comes to constitutional change, many see such steps as an abandonment of sovereignty towards Brussels.

Economically, Italy's situation is precarious at best. Even though the labour market has improved in the past 12 months, unemployment has risen to 11.52% from 5.96% since 2007. The current retirement age is now 66 with many Italians concerned about a further increase.

For the moment, financial markets are remaining quiet, especially after so many failed polls this year (Brexit, Trump and François Fillon in France). Nevertheless, Italian bonds are yielding higher despite these growing uncertainties. Volatility may be significant on Monday for Italian banks, which could, pending a rejection, face concerns over the status of their eurozone bailout come into question. Indeed, eurozone tensions are set to rise adding definite downside pressures to the single currency. However, any such market turmoil, will be temporary as the eurozone needs cohesion. A further bailout for Italian banks is still very likely and the eurozone will proceed with its support whatever the outcome. It is believed that Italian banks would need at least a €20 billion bailout plan to be saved.

However, in keeping with EU referendum tradition, it should be said that whatever the democratic outcome, it may not be a definite result. As has happened many times in the past decades, governments can simply bypass the people’s results.

So, in our view there will be no apocalypse on Monday morning. Whatever the results, it will simply mean that negotiations with the eurozone will become more complicated and that member states are not prepared to hand over sovereignty to Europe.

USD/CAD - Strong Weakness.

 

Today's Key Issues	Country/GMT
nov..25 Money Supply Narrow Def, last 8.66t	RUB/08:00
Nov Unemployment MoM Net ('000s), exp -25,6, last 44,7	EUR/08:00
3Q Current Account Balance, last 36.0b	SEK/08:30
Nov Unemployment Rate, exp 2,80%, last 2,80%	NOK/09:00
Nov Markit/CIPS UK Construction PMI, exp 52,2, last 52,6	GBP/09:30
Bank of Russia Governor Nabiullina in State Duma	RUB/09:30
Oct PPI MoM, exp 0,40%, last 0,10%	EUR/10:00
Oct PPI YoY, exp -1,00%, last -1,50%	EUR/10:00
Oct Industrial Production MoM, exp -0,80%, last 0,50%	BRL/11:00
Oct Industrial Production YoY, exp -6,90%, last -4,80%	BRL/11:00
BOE Chief Economist Andy Haldane Speaks in Middlesbrough	GBP/12:40
3Q Labor Productivity QoQ, exp 1,00%, last -0,30%	CAD/13:30
Nov Unemployment Rate, exp 7,00%, last 7,00%	CAD/13:30
Nov Change in Nonfarm Payrolls, exp 180k, last 161k	USD/13:30
Nov Two-Month Payroll Net Revision	USD/13:30
Nov Net Change in Employment, exp -15.0k, last 43.9k	CAD/13:30
Nov Full Time Employment Change, last -23,1	CAD/13:30
Nov Change in Private Payrolls, exp 170k, last 142k	USD/13:30
Nov Part Time Employment Change, last 67,1	CAD/13:30
Nov Change in Manufact. Payrolls, exp -2k, last -9k	USD/13:30
Nov Participation Rate, last 65,8	CAD/13:30
Nov Unemployment Rate, exp 4,90%, last 4,90%	USD/13:30
Nov Average Hourly Earnings MoM, exp 0,20%, last 0,40%	USD/13:30
Nov Average Hourly Earnings YoY, exp 2,80%, last 2,80%	USD/13:30
Nov Average Weekly Hours All Employees, exp 34,4, last 34,4	USD/13:30
Nov Change in Household Employment, last -43	USD/13:30
Nov Labor Force Participation Rate, last 62,80%	USD/13:30
Nov Underemployment Rate, last 9,50%	USD/13:30
Fed Governor Brainard speaks in Washington	USD/13:45
Nov ISM New York, last 49,2	USD/14:45
Nov Foreign Reserves, exp 450, last 449,9	DKK/15:00
Nov Change in Currency Reserves, last 0.1b	DKK/15:00
Fed's Tarullo Speaks at Financial Stability Conference	USD/18:00
Nov Reserve Fund, last $31.7b	RUB/23:00
Nov Wellbeing Fund, last $72.2b	RUB/23:00

 

The Risk Today

Yann Quelenn

 EUR/USD is pushing higher. Hourly resistance given at 1.0686 (29/11/2016 high) is growing. Support can be found at 1.0518 (17/11/2016 high). Expected to show renewed bearish pressures. In the longer term, the death cross indicates a further bearish bias despite the pair has increased since last December. Key resistance holds at 1.1714 (24/08/2015 high). Strong support given at 1.0458 (16/03/2015 low) is on target.

GBP/USD is gaining momentum, even though the momentum is not enough yet resistance at 1.2674 (11/11/2016 high). Hourly support is given at 1.2302 (18/11/2016 low). Buying pressures don't seem sufficient. The long-term technical pattern is even more negative since the Brexit vote has paved the way for further decline. Long-term support given at 1.0520 (01/03/85) represents a decent target. Long-term resistance is given at 1.5018 (24/06/2015) and would indicate a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.

USD/JPY's bullish momentum is definitely on. The pair is now monitoring strong resistance given at 114.87 (16/02/2016 high). Hourly support is given around 111.36 (28/11/2016 low). Stronger support lies at 108.56 (17/11/2016 low). Expected to see another upside move We favor a long-term bearish bias. Support is now given at 96.57 (10/08/2013 low). A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems absolutely unlikely. Expected to decline further support at 93.79 (13/06/2013 low).

USD/CHF is now moving sideways. Key support is given at the parity. Hourly resistance lies at 1.0205 (30/11/2016 high). Expected to see further monitoring of the resistance area around 1.0200. In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours nonetheless a long term bullish bias since the unpeg in January 2015.

 

Resistance and Support:

EURUSD	GBPUSD	USDCHF	USDJPY
1.13	1.2857	1.1731	125.86
1.1259	1.2771	1.0328	121.69
1.0954	1.2696	1.0257	114.87
1.0645	1.26	1.0112	113.76
1.0521	1.2302	0.9929	109.8
1.0458	1.2083	0.9632	108.56
1	1.1841	0.9522	106.14