EUR/USD: Euro Takes Wild Ride After Italy Referendum

 | Dec 06, 2016 05:53AM ET

The euro has taken a pause on Tuesday, after taking traders on a roller-coaster ride in the Monday session following the Italian referendum. Currently, EUR/USD is trading at 1.0770. On the release front, German Factory Orders sparkled with a gain of 4.9%, above the forecast of 0.6%. There are no major releases out of the US.

Italians went to the polls on Sunday as the country held a referendum on constitutional change. The referendum turned into a vote on the popularity of Italian Prime Minister Matteo Renzi, who staked his reputation on winning the vote. However, the move backfired, as the “No” camp cruised to victory with 59.1% of the vote, a humiliating defeat for Renzi. The prime minister promptly resigned, plunging Italy into political uncertainty.

Predictably, the euro responded with sharp losses early on Monday, dropping to a low of 1.0499. The euro wasn’t done and rebounded with strong gains, as EUR/USD climbed 1.9 percent in the Monday session, punching above the 1.07 level. The euro received a boost by signs that a caretaker government will take over until elections in 2018.

Any indications of earlier elections are sure to rattle investors and the euro, as Renzi’s Democratic Party is running neck-and-neck with the opposition Five-Star Party, which wants a referendum on Italy’s membership in the Eurozone. Renzi’s crushing defeat has shaken up the Eurozone, which is still reeling from Britain’s recent decision to depart the club.

Europe Lower on Renzi Defeat but No Panic Yet

Political Uncertainty Added to Italian Woes

US employment numbers were a mixed bag on Friday. Nonfarm Payrolls improved to 178 thousand, edging above the forecast of 177 thousand. This marked a 4-month high. However, Average Hourly Earnings, which measures wage growth, surprised with a decline of 0.1%, short of the estimate of 0.2%. This was the first decline in wage growth since March. The unemployment rate dropped to just 4.6%, well below the forecast of 4.9%. The strong labor market has been a key factor in the strong US economy, which saw GDP grow at a clip of 3.2% in the third quarter.

EUR/USD Fundamentals

Tuesday (December 6)

  • 7:00 German Factory Orders. Estimate 0.6%. Actual 4.9%
  • 9:10 Eurozone Retail PMI. Estimate 48.6
  • 10:00 Eurozone Revised GDP. Estimate 0.3%
  • All Day – ECOFIN Meetings
  • 13:30 US Revised Nonfarm Productivity. Estimate 3.2%
  • 13:30 US Trade Balance. Estimate -41.5B
  • 13:30 US Revised Unit Labor Costs. Estimate 0.4%
  • 15:00 US Factory Orders. Estimate 2.5%
  • 15:00 US IBD/TIPP Economic Optimism. Estimate 52.3

*All release times are GMT

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* Key events are in bold

EUR/USD for Tuesday, December 6, 2016