The markets have shifted their focus on Italy’s referendum. As there is a potential for EURUSD Italian referendum additional volatility. What are the expectations of XTB?
2 December, AtoZForex – Today data on the nonfarm payrolls and the unemployment rate will be released. Despite being focused on the announcement of this significant figures, markets are awaiting the results of Italy's referendum. According to polls, there is a high chance of a "No" vote. But considering the suddenness of Brexit and US elections, it is not clear yet. Hence, there can be gaps in several markets between Friday’s close and the market open from Sunday night.
To be aware of potential risks, 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 XTB to attain broker’s view on the event. Explore below the comments of Joshua Raymond, XTB CMO, and David Cheetham, Market Analyst at XTB. Along with the possible market outlook post the referendum results.
XTB precautionary measures and expectations on the results
We have decided to increase our margin requirements on a small number of markets from Sunday 4th December until Wednesday 7th December as a precaution. This is part of our overall risk management strategy to help prepare clients for additional volatility and help them to minimize their risk during this time.
The latest polls seem to indicate a 'no' vote is likely but after Trump’s victory in the US Presidential election and the Brexit vote, it’s clear any poll should be taken with a pinch of salt. We’ve recommended to our clients to prepare for additional volatility and to manage their trading risk prudently during this time. We also warn that there could be some sizeable gaps in several markets between Friday’s close and the market open from Sunday night.
XTB research team's outlook: EURUSD Italian referendum
XTB’s market analyst David Cheetham said, "This weekend’s Italian referendum has the potential to cause some substantial moves in the Euro. A victory for "No" would increase the sense of political risk in Italy - with Italian PM Renzi stating that he would offer his resignation should this occur - and could be taken as further evidence of populism gaining ground at the expense of the establishment. However, we should remember that this isn’t a referendum on Italy’s EU membership, rather a vote on changes to the constitution. Therefore, a victory for "No" could well mean more political gridlock and another barrier to the five-star movement gaining power and seeking to drive the country out of the EU. Due to this the Euro would likely favor this outcome and react more positively than if "Yes" were to prevail.
If "Yes" were to come out on top at the ballot box this would represent something of a shock to the markets, with polls and bookmakers heavily favoring a victory for "No". Therefore having the potential to cause a larger move in the Euro. This eventuality could pave the way for an exit from the EU bloc. With the five-star movement close to the incumbent Democratic Party in polls predicting the outcome of the 2018 election which could obviously be seen as a major negative for the Euro."
Regarding the market opening on Monday, this really does depend on the result of the referendum. So it’s too premature to make calls on this today.
Effect on the ECB meeting December 8th
XTB’s market analyst David Cheetham said, "The outcome of the Italian referendum has the potential to impact the forthcoming ECB meeting, but in all likelihood the effect probably won’t be that significant. The central bank states that it forms its policies based on economic data and attempts to remain apolitical, so unless so we see a sharp and dramatic impact on the markets between the referendum and the meeting the impact will likely be negligible. This sort of move would be far more likely should a "Yes" vote prevail and we see a relief rally in the currency. But this remains unlikely and the bank is likely to focus more on inflation dynamics and the possible extension of their QE program. Rather than attempting to speculate on the impact that the referendum may have in the future."
Be aware of potential abrupt moves
As an execution-only broker, we can’t offer any investment advice, but we would recommend that traders are aware of this event and manage their positions accordingly. The potential for sharp moves has led to us raising our margin requirements on a small number of instruments that could be most sensitive to the referendum. Hence, we would like to take this opportunity to warn that there could be some sizeable gaps when markets re-open after their weekend recess.
In regards to special communication lines for clients, XTB offers both SMS and WhatsApp alerts to active traders and it’s here, alongside our traditional email alerts which will bring the latest developments on the Italian Constitutional Referendum and market moves.
Do you have questions related to the XTB Italian referendum outlook? Let us know in the comments section below.