Chaotic Brexit will turn into big problems not only for the UK but also for the eurozone. The markets finally realized that the correlation of the pound and the euro soared to 0.8, pushing the dollar index to its maximum level in a year and a half. The Theresa May's defeat in the government and parliament is becoming more and more real. In addition, the deadline for the submission by Italy of a new draft budget expires. Both factors indicate a possible deterioration in the political situation. In the conditions of slow growth of the Euro block, the bulls on the main pair can take flight.
The weakness of the Euroblock and the need to support banks in the region will force the ECB to worsen the estimates for the main indicators at a meeting in December. In addition, it will force the regulator's management to revert to the use of LTRO long-term refinancing programs, which should be attributed to the monetary direction. At least, there are such rumors.
At this time, the Fed tightens its policy. Divergence contributes to an increase in the profitability differential of 2-year US and German government securities to 3.5%. For traders, this will be enough. Nomura believes that an active difference game forces a further fall in the euro/dollar pair.
The bank expects that other European countries will not follow the bad example of Italy.
At the same time, the bank sincerely hopes that the Italian infection will not spread to others, and the slowdown in US economic growth will keep the currency pair euro/dollar from failure. Experts expect consolidation in the region of 1.1 / 1.135, where the main pair has hung in most of 2015-2016.
If the conflict between the Italian authorities and European officials becomes more complicated, the euro is more likely to go down. At the same time, the disorderly Brexit is another story. To return the euro in the framework of 1.15-1.1875, it is necessary to conclude a deal between the UK and the European Union, as well as approval by the government and the Parliament of England. Otherwise, the sterling will fall in tandem with the dollar to 1.2 and traders will see clouds begin to thicken over the euro.
According to experts, Rome and Brussels will necessarily come into conflict with each other, there is every reason for this. In this scenario, the euro/dollar pair will go down at least to 1.118.
The material has been provided by InstaForex Company - www.instaforex.com