MORE COUNTRIES MIGHT WANT TO LEAVE THE EU AFTER BREXIT
Traders in EURUSD and the Euro crosses would do well to look out for any signs that other countries are thinking of following the UK’s lead and leaving the bloc, particularly if the UK secures good Brexit terms with Brussels.
Inevitably, at the top of the list is Italy, which is currently arguing with the EU over its proposed high-spending Budget that the EU has already rejected once. Unlike the UK, Italy is a member of the Eurozone so any move towards the exit – Italexit or Quitaly – would likely have a direct impact on the Euro, which has been weakening against the US Dollar since mid-April this year.
EURUSD PRICE CHART, DAILY TIMEFRAME (JANUARY 1 – NOVEMBER 15, 2018)
Chart by IG
So far, the Italian coalition government – led by the populist League and the anti-establishment Five Star Movement – has been adamant that Italy will not leave either the EU or the Eurozone, with Prime Minister Giuseppe Conte telling journalists in October: “Read my lips: for Italy there is no chance of Italexit, to get out of Europe or the Eurozone.”
However, it has refused to make significant changes to its high-spending Budget and could face an “excessive deficit procedure” that would lead to financial penalties. Given it is already mired in debt, the government could yet decide that Quitaly is the lesser of two evils.
The London-based betting company William Hill is quoting odds of just 2/1 that Italy will be the next country to leave the EU and the spread – or difference in yield – between Italian and German government bonds has jumped this year to more than three percentage points on concerns about Italy’s debt burden.
ITALY/GERMANY 10-YEAR YIELD SPREAD, DAILY TIMEFRAME (JANUARY 1 – NOVEMBER 15, 2018)
Source: Thomson Reuters Eikon
