The short answer is it should not have an impact at all. Italians headed to the polls and while the socialists won by a slim majority thanks to an election law dating back to the Byzantine empire they will not be able to govern the country without a coalition partner.
Silvio Berlusconi and his capitalist party launched a massive comeback and is now the single biggest party in parliament while the party of comedian-turned politician Beppe Grillo played big spoiler and vowed not to join any coalition. The German puppet government lead by Monti was the biggest loser for obvious reasons.
How should the Italian elections impact your forex strategy?
The long answer is to be aware of what this means for your forex strategy especially to pairs associated to the Euro. Monti, the sweetheart of all austerity measure loving market participants, is out of the door and will not govern anything anywhere. This is good news for the European Union, for the Eurozone and for the Euro. Having said that, the positive impacts for the Euro are more of the nature that it will force structural changes and traders do not like uncertainty which may cause the Euro to face some headwinds over the course of change.
Berlusconi is anti-Germany, anti-austerity and anti-Euro. This is also positive for the Euro as it is another factor which will force structural change not only for the Eurozone and the EU, but also for the Euro. The only sustainable way forward is a split in the Eurozone and the creation of a dual-Euro, a Euro-North and a Euro-South.
Grillo, who is not allowed to be in parliament but is the face of his Five-Star Movement, is also against austerity and demands a referendum in order to remain in the European Union just like David Cameron promised voters after an election win. Both parties will force necessary structural changes to the EU, the Eurozone as well as the Euro.
The above mentioned changes will not take place for potentially several years and for 2013 the Italian election gridlock should not impact your forex strategy. Continue to execute your forex strategy and keep up with economic developments. Place your trades with care and the Italian gridlock should not have any impact on your strategy and portfolio.
The bigger picture over the next five years will continue to be structural reforms and a Euro split will most likely rattle as well as revolutionize the forex market as the most traded and most liquid pair, the EURUSD, will seize to exist and be replaced by EURNUSD and EURSUSD while all other Euro pairs will witness the same plus we should see the creation of the EURNEURS currency pair.
Either way, the Italian election results may be talked about in a decade from now as it definitely has provided fuel that will fire necessary structural reforms and see a metamorphosis in Europe. The EU will be able to evolve and restructured. During that period we should witness an increase in volatility due to the unknown.
