Renzi, 41, has staked his political future by suggesting he would resign if he were to lose, and the first projections of the result are due just before midnight Rome time.

“You have to ask how much the market will react to something they are expecting,” said Andy Soper, head of Group of 10 foreign-exchange options at Nomura in London. "The difference this time is that it might be less about the result and more about how the vote is won or lost. There are a lot of unknowns.”

 

Eoin Treacy's view

If you look back at history you don’t often see old revolutionaries. The leaders might be mature adults but the people on the streets doing the fighting tend to be young, idealistic, ready for anything, and glorying in the freedom they have suddenly been allowed to grasp. 

A big part of the reason Europe has not had more social unrest is because it simply does not have a large population of young people. We’ve all seen the headlines talking about youth unemployment but the reality is that the 18-25 year old bracket is small relative to the massive aging populations in Spain and Italy.

How then do older people revolt? So far it has been via the ballot box. When your pension has been cut and the doctor can’t see you, when you have to pay more for food and your kids or grandkids are laying about then it’s reasonable to expect people will look for a change. The Italian referendum might be about reform of the Senate but more broadly it is about the stringent discipline enforced over a decade on large numbers of people.  

The big question quite apart from the referendum is whether the EU has one rule for large countries and another for small ones. The rules imposed in January state no bailouts and that the depositors need to be bailed in just like what happened in Cyprus. Banca di Monte Paschi is racing to get a bond swap deal done before the plebiscite on Sunday. The share has steadied over the last two days but the broader question is will Italy be able to navigate deftly through every bank that is about to fail. It has a lot of them. 

Fiscal discipline during a credit crisis is the epitome of reactionary policy. We are seeing the deflationary results of a decade of probity and people have had enough. If the Eurozone is to quell revolutionary upstart movements the simple answer is to remove what they are most upset about. That means the potential for fiscal stimulus in the Eurozone is increasing.  

The Euro is barely steady bear the lower side of its almost two-year range. While somewhat oversold in the short-term a clear upward dynamic will be required to signal a return of demand in this area. 

Italian government bond yields have paused in the region of 2%; having doubled since March. An even bigger sell-off took place in 2015 and was capped with a large surge in prices as the ECB moved in. It is not beyond the bounds of possibility that the ECB will step into the market on Monday as it would allow them to an opportune moment to influence the market following a major event.