As polls had suggested and as we previewed, Italians voted against the changes proposed by Italian President Matteo Renzi. From the closing of the polls, the outcome became clear and pressure mounted on the young leader to honor his word and resign. Indeed, within hours, he made the announcement.

Renzi was hailed as a mainstream reformer and this defeat serves as another blow to establishment politics after Brexit and Trump. That is at least the main narrative. EUR/USD dropped in early Asian trading and reached a new low of 1.0510, piercing through the double-bottom of 1.0520.

However, this was quite expected and Italy is certainly not falling apart. Rapid changes of government are something Italians are used to, and the country runs on. A new government will be formed either within the current parliament or after elections. Renzi might even re-emerge as PM once again.

The bigger problem is Italian banks, but as Renzi began paving the way for recapitalization, his successor could do that as well.

And for the common currency is already recovering. We are seeing the beginning of a “buy the rumor, sell the fact” move as trading volume is beefed up by European traders. EUR/USD is already tackling the pivotal line of 1.0570. Looking up, 1.0690 is the next cap, while 1.0520 remains support. It was only breached thanks to thin liquidity.