The euro and the pound rose after the good news that the negotiators from the UK and the EU had reached a preliminary agreement on Brexit.
Let me remind you that all the attention of traders and investors yesterday was focused on the decision on Brexit, as well as on the failure of the Italian government on the budget for 2019, which we will discuss below.
Brexit
The main problem of concluding an agreement was the border of Ireland. Negotiators for a long time tried to avoid the establishment of a physical border in Ireland. It is now known that the new agreement does not provide for a strict border, which may force Northern Ireland to disobey British rules and regulations. This moment will also be studied in detail in the British Cabinet of Ministers, where Prime Minister Theresa May today will transmit the text of the agreement, which has more than 200 pages. Then, if approved by the cabinet, this agreement will be passed to parliament.
The UK government has already announced that the cabinet today will hold a meeting this afternoon to consider a preliminary agreement on Brexit. Any news regarding this agreement will lead to a surge in volatility in the GBP / USD pair. It is likely that, if the preliminary agreement is approved in the cabinet, the British pound will significantly strengthen its position against the US dollar. If not, then investor optimism will suffer severely, collapsing GBP / USD to recent lows.
As for the technical picture of GBP / USD, a breakthrough of resistance at 1.3020 will be a good prerequisite for the continuation of the strengthening of the trading instrument to the highs of 1.3100 and 1.3170. The main driver of growth for the pound in the morning can be a report on inflation. In the case of decline, the bulls will return to the market on the test of support 1.2930 and slightly lower, from a minimum of 1.2895.
Italian government
Returning to the topic of the Italian budget, it is expected that the new authorities went against the European Commission and left the budget deficit for the next year in the form in which the original was proposed. In other words, the Italian budget goes beyond the rules set by the EU.
Yesterday, in the evening, the Italian Government notified the European Commission that it would implement its budget plans, violating EU rules. Italian Economy Minister Giovanni Tria said that the government will fully fulfill its election promises, and this requires an increase in the budget deficit next year to 2.4% of GDP.
Why the euro did not fall? The first reason was the fact that quotes have already taken into account this version of events. The second reason could be the addition, which was set forth in the letter. The point is that the Italian authorities are ready to sell state assets worth 1% of GDP next year, and the proceeds from this will be used to reduce the level of debt. According to their plan, sales will help Italy in 2021 to reduce debt to 126% of GDP from 131.2%, which will be achieved this year. It is also expected that in 2019, the economy will show an increase of 1.5%.
Yesterday's data from the US Treasury Department on the growth of the US budget deficit did not greatly affect the market, since it has long been a little surprising among the participants.
According to the data, the US budget deficit in October of this year amounted to $ 100 billion against a deficit of $ 63 billion in October 2017. As before, the growth in spending outpaced revenue growth. Currently, the deficit is 4% of the gross domestic product of the country.
The ministry also said that federal government spending rose by 18%, while revenues in September increased by only 7% compared with the same period of the previous year.
