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Which Countries Want to Leave the EU After Brexit: Euro Analysis

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EUR price and analysis:

  • As the UK prepares for Brexit and Italy argues with the EU over its Budget, the Euro is suffering.
  • It could weaken further if there are signs that other countries are thinking of following the UK’s lead.
  • Here are some of the other nations that might decide to head for the exit door, or be ushered out of it.

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)

Latest EURUSD price chart.

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)

Latest Italy/Germany yield spread chart.

Source: Thomson Reuters Eikon

Which countries want to leave the EU

Elsewhere, Greece came very close to exiting the Eurozone – Grexit – in the summer of 2015, according to former French President Francois Hollande in an interview with Greek newspaper Kathimerini. Today, Greece’s debts are still high and the view that Greece might be better off outside the Eurozone has never gone away.

One risk is that Greek elections, which will be held on or before October 20, 2019, will result in a more Eurosceptic government after years of austerity and financial bailouts that have boosted Greece’s conservative opposition.

Considering which countries want to leave the EU, several others could potentially quit or be ejected, although the chances are low. Among them:

  • Poland is arguing with the EU over a controversial reform of its judiciary and in a recent poll a third of those questioned said they rejected EU membership. The risk of Polexit was acknowledged in November by European Council President Donald Tusk, a former Polish Prime Minister, who told reporters: “The matter is dramatically serious. The risk is deadly serious. Polexit is possible”.
  • Hungary is also in dispute with the EU, having been admonished by the European Parliament. Lawmakers said it was becoming an authoritarian state at the heart of Europe that encourages nationalists across the continent to follow the same path, and voted overwhelmingly in September to label Prime Minister Viktor Orbán’s government a “systemic threat to the rule of law”. Although unlikely, moves to expel it from the EU are possible.
  • In Sweden, the right-wing anti-immigration Sweden Democrats became the third-largest party in the 2018 elections, leading to political deadlock. While they will not be part of any new coalition that is formed, their advance suggests that anti-EU sentiment is rising there too, despite a survey showing Swedes are still overwhelmingly against Swexit.
  • In Estonia, the populist Eurosceptic EKRE party is gaining ground ahead of elections on March 3, 2019 and could become the third-largest party there. Once again, the chances of an exit are low but not insignificant.
  • Euroscepticism is also high in the Czech Republic and politicians have called for a Czexit referendum.

Of course, this is all a long-term rather than a near-term risk for the Euro, but the chances of another country following the UK’s lead are certainly not negligible – and a risk that traders need to keep in mind.

More to read:

Eurozone Debt Crisis: How to Trade Future Disasters

Resources to help you trade the forex markets

Whether you are a new or an experienced trader, at DailyFX we have many resources to help you:

— Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex



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Forex

A Complete Lack of a Cohesive Government Blights Sterling

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GBP Forecast: A Complete Lack of a Cohesive Government Blights Sterling

Fundamental Forecast for GBP: Neutral

Sterling (GBP) Talking Points:

  • No Meaningful Vote. No Leadership. No EU Concessions. No Brexit.
  • Year-end market conditions make Sterling positions foolhardy.

The DailyFX Q4GBP Forecast is available to download.

In current market conditions, and with the total lack of a cohesive Brexit plan, trading Sterling is nigh on impossible to recommend from a risk- reward stance, leaving our outlook neutral even though the path of least resistance for the British Pound is pointing lower.

Over the past week, the meaningful vote in Parliament for PM May’s Brexit plan was cancelled, the Prime Minister won a vote of confidence – although 117 of her party voted against her – and her visit to Brussels to ask for more concessions to help solve the Irish backstop impasse were roundly rejected by the EU.

As we stand there are a few scenarios that may play out in the short-term, nearly all damaging for the British Pound. The calls for the PM to resign may be listened to by Theresa May, unlikely but still a possibility – the opposition may call for her to step-down, more likely but the Labour Party is currently divided on its Brexit stance – the EU offers some meaningful concessions to help the bill get through Parliament, again highly unlikely – no agreement and the UK goes to WTO rules, looking possible – and finally another Brexit Referendum, a view now gaining traction and a real possibility. While a second Brexit Referendum, and a likely win for Remain, would boost Sterling, the run-up to this break with democracy will weigh heavily on the British Pound.

In a nutshell – if a Government is unable to lead and inspire confidence, putting a value on its currency is impossible.

GBPUSD Four-Hour Price Chart (October – December 14, 2018)

GBPUSD Four-Hour Price Chart

IG Client Sentiment data show 62.8% of traders are net-long GBPUSD. We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests that GBPUSD prices may continue to fall. However, the combination of recent daily and weekly positional changes give us a mixed trading bias.

— Written by Nick Cawley, Analyst

To contact Nick, email him at nicholas.cawley@ig.com

Follow Nick on Twitter @nickcawley1

Other Weekly Fundamental Forecasts:

Japanese Yen Forecast – USD/JPY Rate Fails to Test Monthly-High Ahead of Fed Rate Decision

Oil Forecast – Crude Oil Prices Swamped by OPEC Cuts, Global Growth Fears, Fed



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Is Gold Posed to Lose its Luster?

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Is Gold Posed to Lose its Luster?

GOLD PRICE FUNDAMENTAL FORECAST: NEUTRAL

Talking Points:

  • Gold’s recent bullish breakout may come under pressure despite strong safe-haven demand
  • A strong US Dollar notching year-to-date highs to limit further advances in gold
  • Prospect of a Federal Reserve rate hike pause could shoot the precious metal higher

GOLD PRICE FUNDAMENTAL FORECAST: NEUTRAL

Over the last 5 days of trading, XAUUSD declined 0.72% as investors anxious over slowing global growth sent the US Dollar higher. Although risk-off sentiment should send the precious metal higher, gains in the Greenback overpowered bullish bids for gold. A higher US Dollar makes purchasing gold denominated in America’s currency relatively more expensive thus limiting upside.

Looking to next week, focus will shift to the Federal Reserve as markets await the highly anticipated decision by the central bank’s Federal Open Markets Committee on monetary policy. Markets are currently pricing a 77 percent chance that the Fed will raise its benchmark policy interest rate for the fourth time this year according to the futures market implied probability.

In general, Gold has an inverse relationship with interest rates due to the precious metal not yielding any cash flows like debt instruments. Higher rates result in weakened demand for the commodity as alternative assets such as US Treasuries provide a higher rate of return. If the Fed surprises markets and pauses next week or makes any material downward change to the Fed’s dot-plot, gold could ascend quickly on back of lower future interest rate expectations.

Eyes will also closely watch for the release of several key economic indicators out of America next week. If actual results miss expectations, risk-off sentiment should continue and further boost demand for gold. However, fears over a slowing global economy will incite further rotation of capital from stocks to bonds with investors flocking to the safety of US Treasuries.

For a list of global economic events and data releases, check out our real-time Economic Calendar.

As international buying of Uncle Sam’s bonds increases, foreigners must convert their currency into US Dollars. This drives up demand for the Greenback which becomes a headwind for gains in gold due to the inverse relationship between the two assets.

A third key driver to take note of that will determine gold’s next move higher or lower will be the performance of the Chinese Yuan. As the damaged Asian economy continues to experience downward pressure amid worsening economic data due to the ongoing trade war with the United States, the Dollar may appreciate further against its Chinese counterpart.

The importance of USDCNY to gold is seen in their strong negative correlation. Trade talks between the world’s largest economic powerhouses will largely drive returns for the currencies with the CNY benefiting from any progress President Xi can make with President Trump towards de-escalation tension or reaching a deal.

Is Gold Posed to Lose its Luster?

Due to the mixed event risks and waning bullish technical indicators, the forecast for XAU will be neutral over the week of December 17. Take a look at client sentiment for insight on client positioning and trader bearish or bullish biases.

–Written by Rich Dvorak, Junior Analyst for DailyFX

–Follow Rich on Twitter for real time market updates @RichDvorakFX

Other Weekly Fundamental Forecasts:

Japanese Yen Forecast – USD/JPY Rate Fails to Test Monthly-High Ahead of Fed Rate Decision

Oil Forecast – Crude Oil Prices Swamped by OPEC Cuts, Global Growth Fears, Fed

British Pound Forecast – A Complete Lack of a Cohesive Government Blights Sterling

US Dollar Forecast –US Dollar May Rise as the Fed Checks Slide in 2019 Rate Hike Bets



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Euro Shorts in Charge on Tri-break

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EUR/USD Technical Highlights:

  • Triangle finally broke, has Euro rolling downhill
  • November low, Nov ’17 t-line initially targeted
  • Must be cautious once at support, may put in floor

Let us help you. DailyFX has guides ranging from forecasts to trade ideas to education all in one location – DailyFX Trading Guides.

Triangle finally breaks, has Euro rolling downhill

Friday’s breakdown finally put the Euro outside of the triangle it had been forming over the course of the past month. It’s been an anticipated event, but confirmation was needed first before running with a more aggressive short bias.

Looking lower there is support not too far away. First up is the November low at 11215, followed by the lower trend-line extending over from November of last year; resides around roughly 11180. The way EUR/USD has been trading we’ll want to pay close attention to how it reacts once support is met.

The moves over the past few months haven’t been sustained for very long and this could be another unsustainable drive lower. With that in mind, from a tactical standpoint if the Euro starts to turn up from one of the aforementioned levels then it may be best to call it a wrap as a quick counter-trend bounce could develop.

If, however, selling pressure increases and a break below support unfolds, then perhaps a little momentum may kick in towards near 11100 or worse. It seems unlikely we will see too much power given not only the Euro’s behavior in past months but also because there is only about a week left in the year of full market participation before we go into ‘holiday’ mode. However, even as such, watch and follow the price action first.

Traders are generally long EUR/USD, see the IG Client Sentiment page to see how this acts as a contrarian indicator and is supportive of lower prices.

EUR/USD Daily Chart (Levels, lines to watch)

EUR/USD

EUR/USD 4-hr Chart (Triangle broke Friday morning)

EUR/USD

—Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at@PaulRobinsonFX

Other Weekly Fundamental Forecast:

Australian Dollar Forecast – AUD Prices May Fall Into 2019, AUD/CAD at Risk to Reversal Pattern

British Pound Forecast – Seven Weekly Bear Candles Dominate

US Dollar Forecast – Dollar Hits an 18-Month High as Anti-Currency Demand Fights Liquidity

Equity Forecast – Technical Forecast for Dow, S&P 500, FTSE 100, DAX and Nikkei

Oil Forecast –Crude oil may See Light in Tunnel As Oncoming Train

Gold Forecast – Price Rally Pulls Back ahead of FOMC



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