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Italy New Hot Spot For Euro

Last updated 11/7/2011 3:57 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Italy is quickly becoming the new sore spot for the European credit crisis as the spread between  Italian and German bonds blows out to euro era highs. The yield on 10 year Italian BTP bonds has increased above the key 6.50% level, last trading at 6.54% as markets now focus on the political turmoil in Italy.

Italian Prime Minister Silvio Berlusconi has one day left to convince a group of party rebels from defecting from his coalition in order to survive a key Parliamentary  vote on public finance that could topple his government as early as Tuesday. Although Mr. Berlusconi assured his supporters  that he has enough votes to stay in power,  other politicians disagree. "Berlusconi is bluffing in a last desperate attempt to save himself. He no longer has a majority in the Chamber," said Dario Franceschini of the main opposition Democratic party. Analysts have estimated that Berlusconi could face as many as 20 to 40 potential defectors which would be more than enough to defeat the current government.

Although a no confidence vote would on the surface only add to the political instability in Italy, the currency markets may actually cheer such an outcome given Mr. Berlusconi’s questionale reputation.  Having suffered an endless string of investigations into his personal and business behavior, Mr. Berlusconi has lost the confidence of most investors to lead Italy at a time of serious economic problems and his departure from the political stage may be actually viewed favorably by most market participants.

The EUR/USD remained heavy at the start of early European trade touching a low of 1.3700 before bouncing back on short covering. The economic calendar carriers EZ Retail Sales   and German Industrial Production today both of which could print lower than forecast and add additional selling pressure to the pair.  

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.