Euro under Italian pressure
By Vincent-Frédéric Mivelaz
EUR/USD is currently bouncing off a 1.1312 low (31 October), heading toward 1.1430 short-term. Italy’s deficit budget proposal of two weeks ago has pushed the single currency down against major currencies. Meanwhile, the German Bund spread continues to widen as investors handicap Italy’s bankruptcy risk: at 2.92, its highest in 30 months. If Italy does not fall in line with the European Union’s budget guidelines, it will face fines as high as 0.20% of GDP, pushing the government further into bankruptcy which would weigh on the EUR.
The EU Commission is waiting for an Italian budget resubmission, due for 23 November. But Prime Minister Giuseppe Conte says there is alternative and that no changes will be made. The Commission will rule on all EU-members’ budgets on 21 November.
US elections’ effect on markets
By Peter Rosenstreich
Opinion polls suggest the Democrats will take the House and the Republicans will retain the Senate. If so, forex reactions will be limited: the USD should firm against the Chinese Yuan. Equity prices should firm or rise. However, if the Democrats win both chambers of the US legislature, the USD and equities are likely to fall.
There are lots of conflicting forecasts, but reality should set in early Wednesday in America, when most results will be final. It might be a wild ride, so grab a bag of popcorn and tune into election coverage.