Note that we could be in for some serious volatility early next week once the result of the weekend (Dec 4) Italian referendum on constitutional reforms has been announced. Eight Italian banks face the prospect of failure in the coming months if a “no” vote prevails in Sunday’s referendum, which was proposed by Prime Minister Matteo Renzi, who has tied his political fortunes to the outcome.
If the “no” vote were to win, which seems highly possible given that the polls put it around six points clear of the “yes” camp — market turmoil and turbulence will surely follow. There are growing fears of the need for up to €uro 40 billion that would need to be found in order to bail out the banks involved, and in the longer term it could even mean Italy having to pull out of the Euro.
If that were not enough to send jitters through the EU power brokers and the Euro, then the prospect of a far right President in Austria, at the re-run of the previously cancelled election result, could help to put it, (and the EU!) on the skids. The Austrian election will also be held on December 4, so Monday morning trade in NZ/Australia could be a wild ride!
Far-right candidate Nobert Hofer will run against Alexander Van der Bellen (Greens), and a win for Hofer would have the Brussels bureaucrats extremely worried. While he has not directly called for Austria to leave the EU, he runs a hard line policy on immigration and has said he will call for a referendum should Turkey ever join the EU or if Brussels try to centralise more power than they already have. With regards to immigration, Hofer has said he wants to see accelerated integration of recognised asylum seekers, kick-starting German language courses and helping refugees to find jobs.
Should he win the election the ramifications could be profound for the rest of the EU, particularly with various other elections due in 2017.
His election would also carry huge symbolism as he would be the first far-Right president to be elected in the European Union’s history and – both his detractors and supporters warn – that could prove a catalyst for other populist and anti-establishment movements, currently surging across Europe, to grab power.
Having already been given a boost by Donald Trump’s victory in America and by the anti-establishment vote for Brexit in the UK, a far-right victory in Austria would see the French National Front leader Marine Le Pen jump on the band-wagon in order to further her own campaign to become the next French President in the May 2017 election. Beyond that, the far-right Dutch politician Geert Wilders could also ride the wave of populist revolt to contend the Dutch elections in March 2017 and with the German elections also due next year (between August/October), we could be in for very interesting times.
As for the Euro, selling rallies would still seem the way to go….we shall soon find out.
The monthly chart below shows one possible outcome for next year. If this is a head and shoulder formation, then we have a long way to go in order to meet the objective., which would be at new all time lows. Like I say it is a monthly chart so don’t get too excited yet!
Wait and see, but we should have a clearer picture of the next directional move following the weekend round of political drama.
The post Don’t let politics interfere with a good trade! Watch the Euro on Monday. appeared first on FX Charts Daily.