Three weeks after rejecting Italy’s deficit Budget proposal, the EU will have to take serious decisions on 21 November. The consequence of inaction could have a tough impact on the Italian Government, as Brussels could request Italy to transfer a deposit equivalent of 0.20% of its GDP to the EU rescue fund, while cutting billion of EU funds. Additionally, will the European Central Bank, which is expected to stop its bond-buying program by the end of the year, support the Italian economy through refinancing operations?

We expect the Italian government to reconsider its budget sooner or later, as the market reaction would push Italian yields to their 2014 high: too costly for the budget initially planned. The decision could have a considerable impact on the Italian government budget on one side and the single currency on the other. Dropping by -1.68% from prior week, EUR/USD is currently bouncing back, approaching the 1.1255 range.