Pairs involving the Euro have remained relatively steady following Silvio Berlusconi’s announcement that he is planning to quit once the austerity plans in Italy have been formalised. Markets are taking their time to digest the news with an initial small rally towards the Euro, followed by a pullback in morning trading in Europe today.
As usual, the best way to analyze the Euro is to look at the EUR/CHF pair which is thought to be the barometer on how the Euro is travelling. There is generally a move to the CHF during times of turmoil in Europe as the CHF is considered a safe currency. Conversely as the appetite for risk increases in Europe, the EUR tends to rally against the CHF causing a rise in the pair.
As the chart below indicates the EUR/CHF first rallied a little and is now experiencing a pull-back in early trading today. This is not too unexpected as Berlusconi has only indicated he is planning to retire and his actual retirement is not a fait accompli. Even if Berlusconi was to retire Italy, Greece as well as a number of other countries in Europe still have significant financial issues which will take years to turn around. These issues cannot be solved by a promise to retire alone.
The austerity measures surround implementing the 45.5 billion-euro ($63 billion) package initially passed by Parliament in September that helped convince the European Central Bank to buy Italian bonds to try to contain surging borrowing costs.
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