Italy reiterated itself. Trying to avoid a possible fine, Rome decided to revise the draft budget for the next year, primarily in the context of its deficit. Let me remind you that the European Commission twice rejected the proposed financial document, recommending that the disciplinary procedure is applied to the Italians. And if Rome ignored all previous threats of a similar nature, this time the matter moved from a dead end. True, the compromise proposed by Italy turned out to be very doubtful, or rather, formal. Therefore, the recent optimism of traders was too premature.
At the beginning of the week, there were rumors that the Italian authorities succumbed to the pressure of Brussels and were ready to reduce the budget deficit. However, there was practically no additional information, neither about the plans of Rome nor about the reaction of the European Commission. However, the very fact that the parties are ready to seek a compromise inspired the bulls EUR / USD, after which the price rose to a local maximum of 1.1380.
But as preliminary information became overgrown with details, investor optimism began to fade. First of all, the Italians for a long time could not decide on exactly what amount they will cut the deficit. At the end of the government meeting, they stated that the issue of the budget "should not be reduced to decimal places." Later it turned out that just the notorious decimal places and became a stumbling block between Brussels and Rome. The fact is that the Italians agreed to reduce the deficit by only 0.2%, that is, to 2.2%. It is worth recalling here that initially, the European Commission demanded that the deficit is laid at the level of 0.8%, so this minimal concession disappointed both traders and Brussels.
In fairness, it is worth noting that the European Commission also moderated its appetites. According to preliminary data, they have now raised the maximum permissible deficit level to two percent. According to rumors, the parties are now discussing this particular target, while the level of 2.2% is totally unacceptable for Brussels.
By and large, this is the last attempt of the Italians to agree. In the case of failure, the EU leadership will resort to the procedure of excessive deficit, which in turn can lead to a significant fine (approximately 1.5-1.7 billion euros). According to one of the Italian newspapers, Brussels intends to begin a disciplinary procedure before the Catholic Christmas, that is, before December 25. Therefore, bargaining "about decimals" is of key importance for Rome if they really want to reach a compromise.
At the moment, negotiations continue, so the market receives only fragmentary and non-system information, mostly anonymous. Of course, the Italian authorities will find it difficult to abandon their recent promises (especially regarding the abolition of the increase in VAT and the abolition of raising the retirement age), so the dialogue between the parties is going to be difficult. The vague prospects for negotiations only aggravate the position of the euro-dollar pair, which is already under pressure from other fundamental factors.
For example, Mario Draghi this week voiced a rather "dovish" speech, acknowledging the slowdown in the key macroeconomic indicators of the eurozone. He did not say anything new, but the EUR / USD bears used this occasion as well, reinforcing the success of the downward movement. Brexit also leaves a lot of questions. There are growing doubts on the market that Theresa May will be able to convince the deputies of the British Parliament to support the deal between London and Brussels.
The general fundamental background of the pair is also due to the strengthening of the American currency. The increased uncertainty about the prospects for the US-China trade war, as well as the events in the Kerch Strait, have increased the demand for the dollar. The support of the greenback was also provided by the Fed Vice Chairman Richard Clarida, who yesterday took a rather "hawkish" position. Although last week he had disappointed the dollar bulls with very mild rhetoric. He said that the interest rate was approaching its neutral level, and the slowdown in the global economy would have a negative impact on the growth dynamics of the American economy. Yesterday, he noted that the risks "become more balanced," so the Fed may continue to raise the interest rate.
Given the combination of fundamental factors, we can assume that the EUR / USD pair will soon slide to the nearest support level. The bottom line of the Bollinger Bands indicator on the daily chart, which corresponds to 1.1235. It's too early to talk about longer-term goals, at least until the outcome of the G20 summit. We can tentatively say that if the Argentinean meeting of the leaders of the United States and China fails, the EUR / USD pair will pick up to the key and most powerful support level of 1.1000.
The material has been provided by InstaForex Company - www.instaforex.com