It appears the Italian Government is unlikely to back down from next year’s budget deficit plan. Commissioners from the EU have urged Italy to amend its budget to stay within EU guidelines. They have given Italy until next Tuesday to amend spending plans to show a lower deficit projection.

Currency Pair% Change in 1 monthDifference on £200,000
GBPEUR2.2%€5640 EUR
Italian Government Debt now in excess of EUR2.3 trillion

Italian Finance Minister, Professor Giovanni Tria stated the budget “will not change” after the Eurozone ministerial meeting in Brussels on Monday. This was reinforced when yesterday during an interview he stated that he expects further disagreements.

Goldman Sachs, Senior economist Jari Stehn has said that near term tensions remained high and a breakthrough in talks between Rome and Brussels would likely take time.

"We think that in the response next week the Italian authorities are probably not going to back away from their plan to increase the deficit."

"We ultimately think that things might have to get worse before they get better in terms of market pressure," said Stehn.

Growth in Italy has fallen to zero in the third quarter and Government debt now exceeds €2.3 trillion.

I do not feel that Italian debt will hinder the end of Quantitative Easing considering European Central Bank (ECB) President, Mario Draghi’s firm stance that QE will be concluded by the end of 2018.

While Italian debt remains a concern I think it will be difficult for the euro to make substantial against the majority of major currencies.

Eurozone Retail Sales data underperforms

Yesterday saw the release of the bloc’s retail sales data which showed a year on year decline of 1.4%, but did land higher than the expected 0.7% at 0.8%. Month on Month data fell below expectations and landed at 0%.

There are few data releases of consequence from the Eurozone for the remainder of the week , although it may be worth keeping an eye on the European Commission’s release of its economic growth forecasts later today. This could create volatility.

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