Political conflicts drown the euro

The US midterm elections and the Italian political crisis continue exciting investors in the currency market

The single European currency is wandering at the edge of the abyss near the bottom of the 13th figure. November 13th is a deadline for providing Brussels a new Italian budget project. Coincidence?.. Quite possible, but there’s a big chance that the EUR/USD will be hanging in the range of 1.13-1.15 for a few more days and then crash down.   Rome has no plan B. Rome wants to change the system and to find a way out from the fiscal consolidation policy that has been oppressing this country of the currency bloc.  Alas! The one who finds a way out is almost always the first to be trampled down. 

States are just like people: someone saves money for the bright future, someone lives in the here-and-now and doesn’t think about tomorrow. The Italians dream of living high on the hog like the Americans, but they have to stay faithful to Europe.  Because of a territorial principle.  They might want to cheat, but faithfulness is when it’s faithfulness and not when there’s no one to cheat with. Hence loud statements of the eurosceptics’ leaders that they wouldn’t be caught dead abandoning the euro and that the regional monetary unit is their children and grandchildren’s currency. There’s only one problem: when your lifestyle is different from the others’, you risk becoming an outcast. Or lonely, if you prefer this word. Personally, I haven’t ever complained about loneliness. I have no one to complain to. 

Brussels insists on cutting the Italian budget deficit of 2.4% of GDP. The States are increasing the negative balance to unprecedented volumes and announce the growth of borrowings to over $1 trillion, the highest level since the post-crisis period. They are sure they will get the money (at least, they will print it themselves), but I doubt the Rome will get it. Let’s pray they don’t take money from Rome!  The ECB is ready to punish the rebels by reducing the assets buyout volumes, the EU threatens them with penalties unless the republic becomes more economical than it would like to. Don’t they know that nothing can save the family money as efficiently as a yashmak? Do the Italians simply have to retreat into their shell and stop promoting eurosceptic ideas?

Iron nerves are most often a winning factor in a dispute.   Rome remains calm even if little time is left till November 13th. The European Union, on the contrary, warns about Italy exceeding the budget deficit threshold of 3% in 2020, downrates a GDP forecast and calls through Mario Draghi for paying out the debt. Do they really hope that on November 12th Rome will realize it has overslept and start active actions? 

- Do you go jogging in the morning?

- I do! Around my room, shouting “Oh heck, I’ve overslept”!

The tension is growing and the euro risks stumbling and crashing down to the abyss, but we all want to hope for a favourable conflict settlement. Finally, those who live beyond means understand their children and children will have a rough time. The US midterm elections have proved that. The democrats’ victory will force Donald Trump to curtail his ambitions and stop dreaming about how to enter history books as the president under which everyone was in clover. And after us the deluge! But, alternatively, instead of getting into history books, one may get into a pretty mess. And it’s not obvious that you’ll serve a term twice if you cannot handle a knife and fork.   

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Price chart of EURUSD in real time mode

Forex dives into politics

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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