Euro drops broadly today as Italians voted "no" in the referendum and rejected prime minister Matteo Renzi's reforms. Renzi has already admitted defeat after latest result showed 60% voters voted "no". He also announced that he will resign from office as he promised. Some analysts noted that the result would give a lift to the anti-establishment 5 Star Movement, which is pushing for breaking away from EU. However, it's also expected that a grand coalition would likely follow Renzi's resignation which would keep 5 Star Movement away from power. For the moment, EUR/USD's breach of 1.0518 support suggests resumption of recent decline. EUR/GBP's break of 0.8332 support indicates deeper correction is underway for 0.8 handle next.
ECB on Thursday will now be even more important. Policymakers are set to decide on the future of the EUR 80b a month asset purchase program, which is scheduled to end in March. The result in Italy referendum will heighten the need for ECB to extend the program, without tapering. Meanwhile, depending on market reactions to the referendum, ECB could also tilt the program towards Italian government bonds to stabilize any volatility. Markets are currently expecting a six month extension to the program. And Euro would be vulnerable to deeper fall is ECB announce something bigger than that.
Elsewhere, Australia TD securities inflation rose 0.1% mom in November. China Caixin PMI services rose to 53.1 in November. Eurozone will release PMI services in European session, Sentix investor confidence and retail sales. UK will release services PMI. US will release labor market conditions index and ISM non-manufacturing composite.
Looking ahead, ECB meeting is the main focus of the week. BoC and RBA are also scheduled to announce rate decision. Both are expected to keep policies unchanged and would probably trigger little reactions in the markets. UK data will be watched including PMI and productions. Here are some highlights for the week:
- Tuesday: RBA rate decision, Australia current account; German factory orders, Eurozone GDP revision, retail PMI; Swiss CPI; Canada trade balance, Ivey PMI; US trade balance, factory orders
- Wednesday: Australia GDP; Japan leading indicators; German industrial production; Swiss foreign currency reserves; UK industrial and manufacturing productions; BoC rate decision
- Thursday: Japan GDP revision; China trade balance; Australia trade balance; ECB rate decision; Canada housing starts, new housing price index; US jobless claims
- Friday: Japan BSI manufacturing index; Australia home loans; China CPI and PPI; Swiss unemployment rate; German trade balance; UK trade balance; US U of Michigan consumer sentiment