21.08.201910:03 Forex Analysis & Reviews: EUR/USD. Italy stirred up the market: Conte lost, but Salvini did not win

The political crisis in Italy continued yesterday: Prime Minister Giuseppe Conte announced his resignation, and President Sergio Mattarella, in turn, approved this statement. This step of the head of government was the result of a conflict between coalition partners – the "League" and the "Five Star Movement". These political forces formed a coalition just 14 months ago, but back at the beginning of this year, a "black cat" ran between them. Giuseppe Conte was originally an independent candidate for the Prime Minister's post – the parties tried to maintain a balance of political influence. But de facto, he was closer to the "Five Stars", so he became the main target of criticism of Matteo Salvini, who himself is aiming at the Prime Minister's chair.

The political conflict has matured for several months. Back in July, it became clear that the ruling majority was absent in the Italian parliament, and in fact, the country's legislative body was blocked. This was due to disagreements between the former coalition partners: the last straw in the conflict was the vote on the multi-billion-dollar project of high-speed rail links between Italian Turin and French Lyon. This project was lobbied and supported by members of the "League", while the "Five Stars" voted against it in Parliament. However, this issue only exacerbated the problem, while the differences between the political forces were in other areas – in particular, in the issue of decentralization and the revision of the minimum wage.

It should also be noted that Matteo Salvini has personal arguments for lobbying the idea of early elections – the rating of his party has grown to almost 40%, so in the case of re-elections, he is guaranteed to take the Prime Minister's seat. His position on a tough policy regarding illegal immigration is quite popular among Italians. Also, the leader of the "League" proposed two other center-right parties ("Forward Italy" and "Brothers of Italy") to conclude an election pact to take a majority in parliament "on one front". According to preliminary data, the aggregate rating of the parties of Salvini, Silvio Berlusconi and Georgie Meloni is about 53-55%. If this union is formed, this trio will form a new coalition – of course, in the case of early elections. But the fact of their conduct is still in question.

The fact is that the rating of the former coalition partner of the "League" – "Five Star Movement" has been sharply reduced recently, and now, it is about 11-12% (although in the last election, it was exactly the opposite). Given this fact, they are not interested in re-elections, because they have all the chances to stay out of political life. In this regard, they can find allies among other political forces, which are also "not happy" with the actions of Salvini. According to the Italian press, the leader of the "Five Star Movement," Luigi Di Maio can conclude an alliance with the leader of the Democratic party Matteo Renzi and form a new government. This fact, firstly, will allow avoiding new elections, and secondly – to dismiss Deputy Prime Minister Matteo Salvini, who will find himself in opposition.

This is due to yesterday's reaction of the EUR/USD pair to Italian events. After a sharp decline to 1.1065, the pair showed significant corrective growth, updating the daily high at 1.1107. I note that this price movement was observed with the simultaneous growth of the dollar index, which remains within 98 points. This suggests that the correction was due solely to the growth of the euro, due to "cautious optimism" about the resolution of the Italian political crisis. After all, if opponents of the "League" will be able to defend the Parliament, forming a government, Salvini will not only lose his high government position but will also discredit himself as a political leader. According to some Italian journalists, the failed "putsch" will harm the rating of Salvini, and ricochet – on the rating of the "League".

However, the growth of the euro/dollar pair was limited. Political negotiations in the Italian Parliament are still going on – and their outcome is difficult to predict. If the opponents of Salvini still agree, the euro will receive additional (but minor) support, after which the market will switch to American events. Let me remind you that today, the minutes of the last Fed meeting will be published, and tomorrow, the economic symposium will start in Jackson Hole. But if Matteo Salvini still "finishes" the situation, the pair EUR/USD will again be at the base of the 10th figure. However, the impact of this information guide will also be limited: the speeches of the chairmen of the Central Banks of the leading countries of the world in the Jackson Hole will soon be eclipsed by Italian events.

Thus, the EUR/USD pair reacted quite violently to the political battles in Rome, but traders will switch to other fundamental factors that will determine the vector of price movement very soon.