Eoin Treacy's view -
The common European currency rose against the dollar even as Italy slid into political limbo after Italian Prime Minister Matteo Renzi’s resignation opened the door to fresh elections. The euro earlier fell to its weakest in 20 months. European shares headed for the biggest gain three weeks, while the cost of insuring Italian bank bonds against default jumped. Gold headed for the lowest close since February, Treasury 10-year yields rose to 2.42 percent and a gauge of equity-market volatility slid.
Political risk from Italy hasn’t spread beyond its borders as markets were correctly positioned for the anti-establishment mood sweeping around the world. This was a departure from the Brexit referendum and Donald Trump’s surprise election, when traders were caught out by populist votes.
“After Brexit, it took three days for markets to shake it off, with Trump it took three hours, with Italy it took three minutes,” said Guillermo Hernandez Sampere, head of trading at MPPM EK in Eppstein, Germany. His firm oversees $260 million. “The outcome was not as much of a surprise as many expected it to be -- markets learned their lesson.”
The Italian decision to vote No on the referendum was widely anticipated with the risk residing in whether a snap election would be called. With that option being swept aside soon after the decision, some of the shorts on the Euro were closed in what is a classic example of “sell the rumour, buy the news”.
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