### POV: EUR WILL REMAIN RESILIENT TO..........>

EURO: ### POV: EUR WILL REMAIN RESILIENT TO ITALIAN POLITICS... UNTIL IT DOESN'T

-The relationship between Italian 10y yields and the EUR was tentatively

positive in early 2018, as the USD remained weak and Italian yields calm. But

this correlation has now effectively been reduced to nothing as Italian yields

spike higher, indicating that the single currency is taking Italian political

uncertainty in its stride and as markets see little threat of contagion or

fallout from Rome.

-This pales in comparison to the close correlation between Greek yields and the

EUR in the depths of the EZ debt crisis, in which the EUR would falter on any

move higher in Greek rates.

-This lack of correlation has resulted in FX traders having relatively little

Italian headline risk to consider outside of inconsequential intraday

volatility. Nonetheless, this may not remain the case should the MS5/Lega

coalition move forward with some of their more outlandish plans including

mini-BOT issuance (paying state debts with short-dated notes) or significantly

looser fiscal policy.