Financial markets took their time to digest the latest political instability in Italy, eventually falling into the red with what could be an impending crisis. Major political parties in Italy had been trying to forge a coalition since the hung parliament outcome in the 4th March elections. Recently two of the biggest blocks, Northern League and the 5-star movements, moved closer to forming Italy’s first populist government. They hit a big stumbling block on Sunday 27th May when the current Italian president Sergio Mattarella, rejected the potential alliances pick for the economy minister in Paolo Savona. Often described as a staunch eurosceptic and labelled as ‘radically anti-German’ by previous finance ministers, Savona’s previous hostility to the euro has caused Mattarella to reject his appointment in what is being viewed as very undemocratic. The potential constitutional crisis is likely to lead to fresh elections in August or September, with populist parties expected to benefit from the anger against government interference.

Markets initially interpreted Mattarellas decision as positive, potentially blocking the implementation of an anti-euro party. Moves were short-lived as it became clear that the latest move will cause further instability and likely to backfire. Contagions amongst other major economies in the Eurozone have now heightened, especially in Spain which has its fair share of austerity and political issues. Rating agencies are likely to be on standby to downgrade Italy’s sovereign bonds, a move which could affect the ECB's ability to buy Italian bonds. Italy’s banks are highly indebted and under pressure, since 16th May the Italy 40 has dropped by 11.3, Unicredit by 20%, Banco BPM off by 29% and Intesa by 21%.

Major global indices continue to trade under pressure, all falling lower in recent days.  EURUSD briefly breached November 2017 lows before seeing a small recovery today after hitting a major weekly trend support. Further longer-term support sits on the 50% fib around 1.4451 level, this is a level which capped a long sideways period throughout 2015,16 and 17. Chart indicators pointing to obvious oversold signals due to the aggressiveness of recent moves. Breaks below the trend support and 50% will bring in questions of the Euros longer-term direction.