Orbex Italian referendum outlook: Brexit repeated?

EUR is ignoring the technicals and is under pressure, due to the political event of this coming Sunday. Hence, the markets have turned their focused on Italy’s referendum. How are the Forex brokers prepared against a “no” vote? What is the Orbex Italian referendum outlook?

1 December, AtoZForex – This week hosts three major events, being OPEC’s meeting, non-farm payroll announcement, and the Italian referendum. Markets place a high chance of the referendum to result in a “No” vote. Considering the suddenness of Brexit and US elections, there is still uncertainty. So another string of volatility may come before and after the Italian referendum on Sunday. To offset potential risks, AtoZForex’s readers have requested information regarding the precautionary measures of retail Forex brokers. Along with the possible market outlook post the referendum results.

Ahead the political event, AtoZForex’s readers have requested information regarding the precautionary measures of retail Forex brokers. Therefore, we have reached out to the AtoZ Approved Forex Broker Orbex, for the broker’s view on the event. Find below the comments of Zaid Alkhatib, Orbex COO. Along with the possible market outlook post the referendum results.

Orbex Italian referendum outlook

We are currently monitoring the situation. Our Risk Department will decide whether to implement additional measures or not. We will act in the best interests of our clients to ensure stability and safety of trading. We might increase the margin requirements for some or all instruments as well as widen the spread.

When trying to gauge the outcome of the Italian constitutional reform referendum on Sunday we could perhaps look at the recent polling data. Before the polling blackout was activated on November 18th, the latest polls were showing that the “No” campaign had a 53.5% to 46.5% lead on the “Yes” campaign. With roughly 20% worth of voters undecided.

From this data, it might seem reasonable to expect that the “No” campaign will retain their lead. However, the polling of key political events this year, namely Brexit and the US elections, have been caught offside. Hence, there is a risk that we see an equally surprising outcome with this event too. If those among the 20% of undecided voters shift their weight in favor of a “Yes” vote, then Italy can begin on the path to achieving the constitutional reforms. The changes it so desperately needs.

Orbex’s expectations for the EUR

If Italy votes “No” in the referendum, current PM Matteo Renzi has vowed to resign. This shift in government would cause a great deal of investor uncertainty for a country. Italy has already had a troubled economy having performed worst in the EuroZone, after Greece, since 2008.

The resignation of PM Renzi could see new elections called for as early as 2017. It would give the nationalist Five Star party the chance to come to power. One of the key aspirations of the party is to hold a referendum on EuroZone membership. This event, after the Greek and Brexit referendums, would bring the safety of the EuroZone into question and ultimately weigh on EUR driving it lower. 

Impact on Monday’s market opening and the ECB meeting

If Italy votes”No” in the referendum and PM Renzi leaves office the market is likely to gap lower at the open. If Renzi remains in power, then some of the downsides might be alleviated. Similarly, if Italy votes “Yes” in the referendum markets are likely to respond positively to the news, gapping higher on the open. As risk appetites surge on avoiding heightened political uncertainty in the region.

The timing of the upcoming ECB meeting brings the Italian referendum into even greater focus. If markets react negatively to the vote, concerns for the Italian banking sector are likely to cause volatility in European markets. It, in turn, could spur the ECB into reassuring investors.

They might not necessarily do this with any action at the December meeting. But would likely make sure to communicate clearly that if there is any deterioration in the EuroZone economy they stand ready to act.  Markets are already expecting that the bank will announce an extension of QE and the main focus for the bank will be on satisfying those expectations. Whilst reassuring markets should we see a “No” vote on Sunday.

Guidance for Traders

The key message for traders next week is to protect risk and avoid any situations where losses can get out of hand. A lot of new traders tend to trade very reactively around key events. But forget basic aspects such as correct sizing and trading with stops. The volatility around these events is a double-edged sword. As it presents a lot of opportunities but also a lot of risks.  There is no need to go chasing the market unnecessarily simply because there is a key event. There is plenty of money to be made all year round without the additional risk of these events.

Our primary focus is on informing traders and providing them timely support. It is crucial that all our clients clearly understand the risks and the measures we implement to protect them. Hence, account managers, support team, compliance, and the research team are fully ready to help our traders via any available channel: callbacks, live chats, emails or social media.

Do you have questions related to the Orbex Italian referendum outlook? Let us know in the comments section below.

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