Italy Crisis and Brexit Bigger problem than EU Expected?

According to the finance minister of Latvia, Italy’s political turmoil will hit harder than Greek financial crisis and Brexit vote.

When Latvian minister Dana Reizniece-Ozola was asked if the recent events could have a growth impact during a panel discussion in Paris on Wednesday she stated:

“Definitely, I think we can see what an impact Brexit has already caused to the EU in general, and if Italy fails to form a government that might be still pro-European and still dedicated to the reforms and getting the country back within the fiscal stance, that might be a bigger harm to the whole of Europe.”

The financial and political situation in Italy has started to show the impact of this situation and the concern of the other members of EU is growing fast. Reasons like the weak growth, the unemployment which is at 11%, its public debt at 132% of (GDP) versus to the euro zone’s 87% put Italy in the fifth place of the most indebted country in the world.

Now a very strong statement that indicated the seriousness of the problem is the statement of Joumanna Bercetche on CNBC who said “We could handle Greece, we could and will handle Brexit … Italy will be too much I think.”

This statement comes to add another layer of the fear to the market which probably if we add all the other factors in considerations we may see the beginning of a chain reaction on the European markets and ignite events that may cause economic tsunamis in all over the globe.

Another factor that may indicate a panic in the markets in the past days, where we saw EUR fall to its lowest point in more than 5-6 months.

The clues are visible like the Italian bonds went to their highest level after many years and all major markets went down, including the S&P 500 and the Dow Jones on Tuesday causing markets to panic.

The fear in the markets that a financial downturn could spread to the rest of the 19-members of the eurozone and beyond is causing Europe’s growth to slow down and the FED has held their plans for hiking rate.

This panic will not help Italy and they may even need help from outside of the country to repay government debt, like Greece.

While the markets are in a panic a tone of optimism seems to show in Formers IMF Chief Economist Olivier Blanchard statement on CNBC this week that he believed Europe would be OK, but he was “very worried about Italy.”

The following months are going to be very interesting because the new economic and political crisis in Italy will test one more time the strength of Europe.

EURUSD 1H Technical View

Here we can see that a potential bullish opportunity has started to form, a confirmed kumo break out is in place with the price out of the cloud, tekan sen and kijun sen being in bullish formation, and the chikou span above the price.

What we would like to see before starting to look for any potential bullish signals is the price bounce on kijun sen.

Taking into consideration the fundamental aspect it’s important to state here that following the bull side shall be considered with caution.

This article was written by Marios Athinodorou, TeleTrade’s market analyst, and commentator. Among others, Marios is delivering weekly trading webinars. Sign up for upcoming webinars here.