EUR fell on a negative referendum outcome

5 December, 2016

Italians voted ’NO’ to constitutional changes proposed by Italian Prime Minister Matteo Renzi. After negative outcome of the referendum, Renzi decided to quit in the early hours of Monday. The outcome of the referendum was around 60% - 40% for Renzi’s opponents (almost all votes counted). Renzi will turn his resignation to President Mattarella later today. He also signalled that he won’t stay on to help stabilise administration.  

Renzi told his supporters that in Italian politics, no one ever wins, he even broke a tear while thanking his wife. He said he did everything there was to be done. Now President Mattarella has a lot to think about. A possible successors who might be asked to lead the government may be either Finance Minister Padoan, Culture Minister Franceschini or any other official. Mattarella has to find a chief that would stop the rapid rise of anti-euro Five Star Movement. 

According to EMG survey which was released on Sunday, Five Star would won a second round ballot by 53% to 47% against Renzi’s Democratic Party and by 57% to 43% against the center-right bloc. One should keep in mind that Five Star Movement had demanded a snap election if ’NO’ prevailed. So it may be only a matter of time until we see another referendum, calling for ’Italexit’. The election is scheduled in 2018 but we will likely see an early election in the second half on next year. 

EURUSD has dropped more than 1% on the news. USD in general remains elevated on safe haven flow, Antipodean currencies were taking a heavy beating, major Asian indexes also opened lower due to a moderate risk-off. European open will be interesting, especially Mank Monte dei Paschi di Siena will be in focus. We may see some reaction on Italian bonds as well.

EURUSD fell to 18-months low after Italian referendum, there are elections in the Netherlands, France, Germany and Italy next year so EUR may remain under pressure

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