EURUSD Outlook: Salvini Calls for Elections After Government Majority Dissolves

Italy Government Breakdown Talking Points:

• The Euro is largely unchanged after Deputy Prime Minister Salvini called for a vote to have elections following the current governments deadlock over the past few weeks

• Salvini aims for parliament to acknowledge the governments inability to survive and enable President Mattarella to dissolve parliament

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The Euro is little changed versus the US Dollar Thursday afternoon, despite news that Italy‘s Deputy Prime Minister Salvini called for a vote to hold new elections for the countries government. The move follows weeks of squabbling in parliament between the weakly formed coalition of Salvini’s Northern League party and Di Maios anti-establishment Five Star party and came to a climax today when the coalition between the two parties could not come to a decision on a high-speed rail link to France.

Italy 10-Year Bond – German 10-Year Bond Spread Daily Time-Frame

The Italian 10-Year bond sold off slightly while the Euro trickled higher despite Salvini and his Northern League‘s call for a more right-wing agenda that may clash with the EU. The Northern League party has gained popularity since the last election, now just shy of the 40% required to put the party in a controlling majority. Although a situation that mirrors Brexit is still far off, markets have expressed concern regarding Salvini’s tough stance towards the EU as evidenced by his defiance towards rules from Brussels which aim to control debt limits and spending by member states.

EURUSD Price Chart: 1 – Minute Time Frame (Aug 8)

Tensions between the European Union and Italy have risen to a fever pitch in recent months as Italy‘s budget threatens to exceed the 2% limit set in place by the EU.Brussels has become increasingly frustrated with Italy over its budget deficit. An attempt by the European Commission to curb Italy’s growing debt seemingly fell on deaf ears after Salvini continued his calls for tax cuts. He later warned that Italy will not be able stay below the 2% budget deficit limit. Italy holds the Unions second highest debt-to-GDP ratio at 132%, far higher than all other members except Greece at 181%.