The euro has a load taken off its mind. Forecast as of 20.06.2024 | LiteFinance
France’s political crisis may fade away as quickly as it broke out as the euro’s political popularity exceeds its economic drawbacks. Still, the EURUSD has some trouble ahead. Let’s discuss it and make a trading plan.
Weekly fundamental forecast for euro
There will be no parity. Eurosceptics are not planning a Frexit, which would knock out the EURUSD. Marine Le Pen says her National Rally party is ready to govern the country with Emmanuel Macron and respects the laws. Does that mean that the Right will abandon promises to cut taxes and increase budget spending after coming to power? If so, the political crisis may fade away as quickly as it broke out.
After the Party for Freedom won the elections in the Netherlands, its leader, Geert Wilders, abandoned the idea of holding a referendum on the country’s exit from the EU. Although Giorgia Meloni criticized the European Union, she became a team player and cooperated with Brussels after she started serving as the prime minister of Italy. Everyone understands that the euro’s political popularity exceeds its economic drawbacks. People worry that their savings will be converted into depreciating local currencies.
The likelihood of a Frexit is extremely low, so investors’ main concerns are the contradictions between the National Rally and the EU. Brussels will demand that the Stability and Growth Pact be respected, meaning that a country with public debt exceeding 60% of GDP must reduce its budget deficit to 3%. France’s deficit is 5.5%, with debt amounting to 111% of GDP, and fiscal stimulus from the Right will inflate it further.
Budget deficits
Source: Wall Street Journal.
The widening spread between French and German bond yields, the widest since 2012, is not worth worrying about either. It’s mainly driven by falling German yields amid expectations of the Fed’s and ECB’s policy easing. French bonds have shown steady buyer interest.
The market speculates that the ECB may intervene, but the central bank will unlikely help Paris. It prefers to buy bond sell-offs from other eurozone countries. The ECB does not think the European bond market is in chaos, meaning that the devil isn’t as black as it is painted.
France/Germany bond yield trends
Source: Bloomberg.
Thus, the good news for the EURUSD is that politics won’t drown it. Still, quotes may drop from the current levels. According to Nordea, the Fed will hold the rate at 5.5% for as long as possible. A cut will occur only in December. On the contrary, the ECB will take two more steps to ease policy in 2024 since one deposit rate cut from 4% to 3.75% is insufficient to support the weak eurozone economy.
Weekly trading plan for EURUSD
An upcoming response from China in the trade war with the EU and the risks of Donald Trump, with his protectionist policies, returning to power make it clear that the EURUSD should not be expected to grow fast. If the pair increases above 1.0755, consider long trades. On the contrary, short trades can be opened once the pair declines below 1.0725.
Price chart of EURUSD in real time mode
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.
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