This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Global Macro: Italian Gridlock Puts Euro in Jeopardy

Stocks in this article: FXY FXE

NEW YORK ( TheStreet) -- Political strife in Italy, much like the issue we face here in the United States, is having a negative effect on European financial markets.

The first chart below is of the 10 year yield on the Italian government bond.

In recent weeks, a struggle for power in the form of re-election rumors among top parties in Italy's parliament has put into question the sustainability of the country's economic recovery.

Deadlocked Italian elections last February left no party the ability to govern alone, this has meant polarization and political stalemates ever since.

Italy suffers high unemployment and meager growth currently, but added political uncertainty makes recovery efforts that much more difficult.

If parliament cannot make coordinated policy decisions then the country's fiscal operations are in jeopardy.

On top of that, now higher borrowing costs due to the political gridlock, as shown below, make borrowing more expensive for the country.

Low growth and a higher debt expense is a recipe for disaster. If a shakeup were to occur among leaders in the Italian parliament and things became even more uncertain, the entire euro zone could face consequences.

The chart below is of the euro/yen currency cross as represented by CurrencyShares Euro Trust (FXE) over CurrencyShares Japanese Yen Trust (FXY).

The European currency has already corrected lower against the safe haven Japanese yen as uncertainty has arisen over future risks the currency may face.

Italian disruptions have caused investors to sell the euro and buy the perceived safer yen.

Weakness in the euro can also be attributed to the European Central Bank's commitment to keeping interest rates low as the region's economies continue to recover.

The currency pair is reaching levels of technical support, which could mean a resolution within the Italian parliament would act as a catalyst for a stronger euro.

A break below support alongside continued strife among Italian politicians, however, could push the pair lower towards August support levels.

At the time of publication the author had no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Andrew Sachais' focus is on analyzing markets with global macro-based strategies. Sachais is a chief investment strategist and portfolio manager at the start-up fund, Satch Kapital Investments. The fund uses ETF's traded on the U.S. stock market to gain exposure to both domestic and foreign assets. His strategy takes into consideration global equity, commodity, currency and debt markets. Sachais is a graduate of Georgetown University, where he earned a degree in Economics.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 18,030.21 +6.04 0.03%
S&P 500 2,081.88 -0.29 -0.01%
NASDAQ 4,773.4720 +8.0480 0.17%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs