The euro declined to a 20-month low during the course of Monday’s session and investors fled riskier assets after Italian Prime Minister Matteo Renzi’s resignation statement, followed by his defeat on constitutional reform that could undermine the unstable banking system of the country.
A weak start is also expected on European stock markets, with Italy underperforming as investors are indulging for turbulence and political crisis in the euro zone’s severely indebted third-largest economy.
Subsequently, analysts are expecting the EuroSTOXX 50 to post declines of approximately 0.6 percent, while Germany’s DAX and Britain’s FTSE are anticipated to have a weak start of 0.4 percent.
Renzi’s decision has been weighing in on the European Union, which has been spinning under anti-establishment anger that has sent an unexpected exit if the UK from the club in June.
"It’s not very hard to see a new election on the horizon, and it’s not very hard to see the (opposition) 5-Star Movement taking power with stated aims to either leave the EU, drop the euro, or both,” said Mark Wills, head of State Street Global Advisors' investment solutions group for the Asia Pacific.
"For Italy, establishing stable governance and a plan to guide the nation is of critical importance given the fragility of the economy, challenging policies and the liquidity problems in the banking system."
Meanwhile, the single currency dropped more than 1.4 percent to settle at $1.0505, before seeing rebounds nearly at $1.0563.
It appears that declines to its session low was the steepest since June and opened the way to a retest of the March 2015 and stood at $1.0457.
An Upside Down Polls
Ahead of the upside down polls after the Brexit and the US Presidential elections, it is expected that several investing community are making their hopes up that the polls find the Italian referendum wrong and make it three in a row.
As investors are closely watching for the Italian Referendum result, along with the reopening of the foreign exchange markets, the euro to dollar exchange rate is currently changing hands at 1.06664 level.
According to an Italian law, no poll results are published two weeks before the vote. There were reports claiming that the “No” vote was leading the “Yes” vote by about 5 percentage points.
However, the 15% undecided voters are widely anticipated to be a major factor in the referendum results.
Current Stance of EUR/USD Pair
The chart below illustrates EUR/USD price movement amid the Italian referendum result, including the reopening of the foreign exchange markets.
Given a bearish tone of the pair, market participants slightly indulge in buying the currencies as it is likely that the Italian referendum result will give a huge impact on the pair.
Further, the pair tries to break through resistance 1.06923 in a heavy trading volume in today’s session.
As the illustrative chart above shows a bearish tone of the pair, market participants are recommended to still wait on the sidelines as there aren’t any supporting candle present as of writing.
In addition, the price movement is prone to upside bias.
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