Darker Clouds Gather Around The Euro After Italy’s Disappointing GDP

The EUR/USD is trading below 1.1400 but refraining from the cycle lows of 1.1335. Italy’s economy stagnated in the third quarter of 2018, worse than 0.1% expected. Year over year, the economy decelerated from 1.2% to 0.8%. The weak data also has implications for the clash over the budget deficit.

Italy remains in the limelight as the clash between the European Commission and the nation continues. The government led by Matteo Salvini and Luigi di Maio is set to submit the budget to parliament today despite the Commission’s explicit rejection. As Italy has a high-debt-to-GDP ratio of around 130%, the EC wants a limit of 2%. Italy will raise money today in bond markets.

German Chancellor Angela Merkel announced she would not be contesting the leadership of her party in December but that she will remain at her post until the next elections, due in 2021 but may come earlier.

The EUR/USD initially dropped but stabilized on the announcement that followed the very disappointing election results in Hesse, a region that is home to Frankfurt.

While concerns about Italian and German politics weigh on the common currency, it receives support from a better market mood after US President Donald Trump expressed optimism about reaching a “great deal” with Chinese President Xi Jinping at the G-20 Summit in Buenos Aires in November. The rise in stocks pushes the greenback and the yen down against all other currencies.

The optimism followed reports that the US will present fresh tariffs on around $257 billion of Chinese goods in early December. These will include all remaining products that were not subject to duties in the previous round. The report sent stocks plunging, and Trump’s interview with Fox News sent equities back up.

French GDP came out at 0.4% within expectations and the euro-zone figure is projected to stand at the same quarterly rate.