Italy's new budget deficit collapsed Italian shares below key levels

The two populist parties ruling in Italy took a decision on the deficit next year.

The Left Five Movement and the Right League have agreed a target deficit of 2.4% in 2019, despite the opposition from some technocrats in the country, including Finance Minister Giovanni Tria.

The new deficit target is three times higher than the one planned by the previous government. Higher public spending could trigger negative market responses as Rome holds the second largest pile of debt in the eurozone - a total of 2.3 trillion euros ($2.67 trillion).

Market reaction and what can we expect?

EUR marked a second consecutive day of collapse, reflecting worries about Italy's debt, and today the decision on the country's budget has had the greatest impact on bank stocks. Due to the high volatility and strong sales, today the trading of the shares of some of the banks was stopped.

Let's look at Italy's basic stock index, FTSE MIB (In VAT - ITA40)

The technical price activates a double top formation, and the upward correction we observed up to three days ago reached the formation lineup. The current Price Action is indicative of the fact that investors are fleeing Italian assets, and what is most appropriate at the moment is to wait for a new corrective impulse. Entry short of current levels will be too risky. 50 and 200SMA are already located in the sword and, combined with the lower peaks the index registers, the evidence for a new Short-Trend is available. Shorts look the most appropriate trade at the moment, but we need to wait for a correction to get involved properly.

Source: CNBC

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