Talking Points:
- A senior Italian government official cautioned that the new budget could be rejected by the European Commission again, noting that a sovereign credit rating downgrade could follow.
- Italian BTP yields are rising once again, weighing on EUR/USD[1] ahead of the September FOMC[2] meeting minutes later today.
- Retail traders[3] are quickly neutralizing positioning across USD-pairs, and sentiment is turning 'mixed' as a result.
Looking for longer-term forecasts on the Euro[4] and the US Dollar? Check out the DailyFX Trading Guides[5].
The US Dollar (via the DXY[6] Index) may not have seen much net-change over the past week, but today price is testing the highs over the past week as the Italian budget saga has taken another turn. Just yesterday, signs were pointing to a deal being secured, allowing the Euro some breathing room as Italian BTP yields fell.
But with Italian bond prices dropping again, the Euro has hit the skids ahead of the US cash equity open on Wednesday. Earlier, a senior Italian government official cautioned that the new budget approved by Rome could be rejected by the European Commission again. Likewise, with rating agencies reviewing Italy's sovereign credit rating, the official also said that ratings downgrade could follow.
The latest turn in the Italian budget drama comes amid an uptick in volatility across financial markets. Lingering in the background is the outcome of the EU-UK Brexit summit this week, and based on the comments from various EU and UK officials, a deal is either 1) close to be clinched, thereby avoiding a 'hard Brexit,' or 2) lightyears away from happening. The outcomes
