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France’s political crisis may fade as quickly as it erupted, with the euro’s political popularity outweighing its economic shortcomings. still Euro against the US dollar He has some problems in the future. Let’s discuss it and make a trading plan.
Weekly fundamental forecast for the Euro
There will be no parity. Euroskeptics are not planning a Brexit, which could lead to a no-deal Brexit Euro against the US dollar. Marine Le Pen said that her National Rally party is ready to rule the country with Emmanuel Macron and respects the laws. Does this mean that the right will abandon its promises to reduce taxes and increase budget spending after it comes to power? If so, the political crisis may fade away as quickly as it erupted.
After the Freedom Party won the elections in the Netherlands, its leader Geert Wilders abandoned the idea of holding a referendum on the country’s exit from the European Union. Although Giorgia Meloni criticized the European Union, she became a team player and cooperated with Brussels after she began serving as Prime Minister of Italy. Everyone realizes that the euro’s political popularity exceeds its economic shortcomings. People fear that their savings will be converted into low-value local currencies.
The odds of a no-deal Brexit are very low, so the main concerns for investors are the contradictions between the National Assembly and the EU. Brussels will demand respect for the Stability and Growth Pact, which means that a country whose public debt exceeds 60% of GDP must work to reduce its budget deficit to 3%. France’s deficit is 5.5%, debt is 111% of GDP, and fiscal stimulus from the right will inflate the deficit.
Budget deficit
Source: Wall Street Journal.
The widening spread between French and German bond yields, the widest since 2012, is not worth worrying about. This is mainly due to lower German yields amid expectations of easing policy by the Federal Reserve and the European Central Bank. French bonds showed consistent interest from buyers.
The market is speculating that the European Central Bank may intervene, but the Paris central bank is unlikely to help. It prefers to buy bonds from other eurozone countries. The European Central Bank does not believe that the European bond market is in a state of chaos, which means that the devil is not as black as he is portrayed.
French/German bond yield trends
Source: Bloomberg.
Hence, good news for Euro against the US dollar It is that politics will not drown him. However, prices may decline from current levels. According to Nordea, the Fed will keep interest rates at 5.5% for as long as possible. The cut will only take place in December. On the contrary, the ECB will take two additional policy easing steps in 2024 because cutting the deposit rate from 4% to 3.75% is insufficient to support the weak eurozone economy.
Weekly trading plan for EURUSD
The expected response from China in the trade war with the European Union, and the risks of Donald Trump, with his protectionist policies, returning to power, make it clear that the U.S. Euro against the US dollar We should not expect it to grow quickly. But we can exploit the strength of the pair to buy from 1.0755 and its weakness to sell from 1.0725.
EURUSD price chart in real time mode
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