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The euro zone has its usual smattering of medium-tier economic releases while Switzerland has an empty docket. Something tells me that Italy could stay front and center this week, though.

More headlines from Italy?

After a lot of tense debates, the Italian government finally signed off on its 2019 budget last week. However, the drama might be far from over as their spending plans go waaay beyond the EU’s limits and there’s even talk of likely credit rating downgrades later this month.

To make things worse, rumor has it that finance minister Tria might throw in the towel as political parties have forced his hand in accepting a much larger deficit. In that case, another blow to investor confidence could be seen, possibly spurring a sharp slide in European stock markets.

Last Week’s Price Review

The Euro

The euro is on course to closing out the week in second-to-last place (as of 1 pm GMT), which will put an end to two weeks of net wins.

Overlay of EUR Pairs: 1-Hour Forex Chart
Overlay of EUR Pairs: 1-Hour Forex Chart

The euro actually had a somewhat promising start, thanks to a double boost during Monday’s morning London session from League Chief Financial Officer Claudio Borghi’s comment that an “exit from the euro is out of the question,” as well as the better-than-expected readings from Ifo.

The euro also got an extra boost when ECB Overlord Draghi said that he sees “a relatively vigorous pick-up in underlying inflation.” However, buyers quickly ran out of steam and the euro was forced to return some of its gains before trading sideways.

Buyers would return during Tuesday’s European session, thanks to a La Stampa report, which claimed that the Italian government is supposedly ready to compromise with the E.U. by having a budget deficit of only 1.9% of GDP.

The euro then get slapped lower when ECB Chief Economist Peter Praet said that “[t]here was nothing new” to Draghi’s comment. However, dip demand was rather strong and the euro quickly recovered since Praet’s comment was apparently not enough to dissuade market players from pricing in a September 2019 ECB rate hike, market analysts say.

The euro’s rally eventually stalled, though, and sellers even began to prevail during Tuesday’s U.S. session. No clear reason why, but profit-taking ahead of Italy’s budget meeting is a possible reason since the euro was mostly range-bound from then on.

The euro would finally wake from its slumber on Thursday, thanks to rumors that the budget meeting will be delayed, which caused the euro to plunge as Italy-related uncertainty ramped up.

It was later revealed that the delay would only be by 2 hours, though, so the euro was able to lick its wounds. However, sellers would return as Italy’s budget meeting loomed ever closer.

Sellers then continued to kick the euro lower as the meeting started. And when word got out that the government agreed on a 2019 budget deficit of 2.4% of GDP, the euro continued to drift even lower before eventually finding support, probably because the E.U. didn’t immediately react to the news.

However, sellers would return on Friday, thanks to European Economic and Financial Affairs Commissioner Pierre Moscovici’s comment that Italy should reduce its “explosive” deficit target to more acceptable levels. It also didn’t help that Moscovici reminded listeners that the E.U. may impose sanctions if Italy won’t comply.

Incidentally, the euro’s weakness on Thursday and Friday is the reason why the euro is currently a net loser. Basically, higher expectations for an ECB rates hike were overshadowed by Italy-related concerns.

The Swiss Franc

The euro is weak but the Swissy is even weaker since the Swissy is currently THE worst-performing currency of the week (as of 1 pm GMT), which is rather interesting since risk aversion prevailed for the most part.

Overlay of CHF Pairs: 1-Hour Forex Chart
Overlay of CHF Pairs: 1-Hour Forex Chart

EUR and CHF pairs had very similar price action (as usual). However, the Swissy decoupled from the euro during Monday’s U.S. session. And since the Swissy wasn’t able to close the gap, that early decoupling is essentially the reason why the Swissy fared worse than the euro.

As to what caused the Swissy to weaken even as the euro strengthened, there’s really no apparent reason for that. But I did conjecture in Monday’s U.S. session recap that traders may have been flocking to the Greenback at the Swissy’s expense.

Another possible reason is SNB meddling since the Swissy was also broady weaker on Thursday, even though risk aversion prevailed.

In fact, the Swissy was even weaker than the euro since the euro at least got a chance to lick its wounds ahead of Italy’s budget meeting.

The Swissy also had a hard time moving higher on Friday, even though risk aversion was rather intense as Italy-related concerns grew.

CAD/CHF (inverted, red) vs.  EUR/CAD (black): 1-Hour Forex Chart
CAD/CHF (inverted, red) vs.  EUR/CAD (black): 1-Hour Forex Chart
CHF/JPY (red) vs.  EUR/JPY (black): 1-Hour Forex Chart
CHF/JPY (red) vs.  EUR/JPY (black): 1-Hour Forex Chart
USD/CHF (inverted, red) vs.  EUR/USD (black): 1-Hour Forex Chart
USD/CHF (inverted, red) vs.  EUR/USD (black): 1-Hour Forex Chart