On November 21, the European Commission will announce its verdict on the draft budget of Italy. By and large, there is no intrigue here: representatives of the EC have repeatedly stated that the nominal budget deficit is three times higher than the figure provided for by earlier commitments of the Italians. In addition, the submitted document contradicts the Stability and Growth Pact, which defines the tax and budget policy of the European Union. Rome, in turn, refused to change the parameters of the budget – last week it was presented it was in fact presented in the same form. Therefore, it is easy to predict the "verdict" of the European Commission – Brussels will certainly announce the above theses, thereby, launching a disciplinary procedure against Italy.
This scenario is already partially embedded in the current prices, because the further algorithm of mutual actions was obvious even when the Italians refused to revise the budget rejected by the European Commission. Therefore, on Tuesday, the EC members will only state this fact, after which there are two possible scenarios: either Brussels will resort to penalties (having previously prepared a report codifying the violations committed by the Italian authorities), or the European Commission will agree to postpone the introduction of such measures. The second option, though unlikely, but still not excluded – according to some experts, the EC can wait until December – so that the Italians could once again "think about their behavior."
Of course, such a turn of events will be a positive signal for the euro – this will speak about the potential negotiability of Brussels and Rome. But the "sanctions path" certainly will not bring down the position of the single currency. The euro will be under background pressure, but one can hardly expect a downward impulse of several figures. First, the most likely scenario is already taken prices into account – the market is ready for further confrontation between the EU and Italy.
Secondly, the implementation of the disciplinary procedure will last for months, so the European currency will remain only under background pressure, while other, more "live" fundamental factors will set the tone for trade. Third, the outcome of the disciplinary procedure is also predictable: experts believe that the amount of the fine will be about 1.7 billion euros (i.e. 0.2% of GDP). This amount may double if the Italians continue to "resist". But the doubled amount of the fine is unlikely to affect the euro radically against the background of other events of a fundamental nature.
Thus, the question of the Italian budget has already outlived itself somewhat: traders are not so emotional to react to mutual verbal "injections" of politicians and are ready for their further battles. Moreover, some ECB representatives urge not to exaggerate the importance of this problem. For example, the representative of the European central bank Ewald Nowotny said that the increase in the yield of Italian government bonds has a "very limited impact" on the broad stock market. In addition, the budget confrontation itself has a limited impact on other, larger-scale processes.
In my opinion, the cause for concern will appear when the issue of the Italian budget turns into a political crisis in Italy: for example, early re-elections can strengthen anti-European rhetoric among politicians - and this fact will put strong pressure on the euro.
The economic calendar for the EUR/USD pair this week is almost empty - only the report of the last ECB meeting is of interest, the release of which is scheduled for Thursday. Therefore, traders will focus their attention on the events of the external fundamental background: Brexit and prospects of the US-China trade negotiations. Also interesting is the position of Fed members on the prospects of monetary policy in the light of the "correspondence confrontation" of the head of the Federal Reserve Jerome Powell and his Deputy Richard Clarida.
Let me remind you that Powell quite positively assessed the growth dynamics of the American economy and announced a further gradual increase in the rate. Clarida, in turn, noted that the slowdown in the global economy will have a negative impact on the key indicators of the US economy, and the interest rate has already approached its neutral level. Such discord surprised the market, then the dollar index slid to the limits of the 95 points. The rhetoric of the other Fed members will help traders navigate the situation in the context of the regulator's future prospects.
From the technical point of view, the situation for the EUR/USD pair has not changed since yesterday: the price has overcome two resistance levels on the daily chart – the average Bollinger Bands line and the Kijun-sen line. The next price target is the upper line of the Bollinger Bands indicator on D1, which corresponds to the level of 1.1485. If the pair overcomes this target, the Ichimoku Kinko Hyo indicator will form a "Golden cross" signal, which warns of a change in the bearish market to the bullish one. In this case, the price may jump to the middle of the 15th figure. The support level is the middle line of Bollinger Bands and the price of 1.1370.
