EUR: Euro proving resilient to France – ING
|The Euro (EUR) is not actively trading on the French political turmoil, but it’s likely facing some degree of restraint from it. French equities had another bad day, but what matters is OAT's performance. The euro’s correlation with EU bond spreads to German bunds tends to be either very low most of the time or quite high for short bursts. For Italian bonds, the pain threshold was around 200bp; for French bonds, we don’t have enough history to be sure, but a break above December’s high of 90bp (currently 77bp) can trigger a significant euro reaction, ING’s FX analyst Francesco Pesole notes.
EUR/USD can ultimately make its way back to 1.170
"Such a move would suggest fiscal concerns are outweighing political instability. The latter seems largely priced into the OAT risk premium, given that politically stable Italy is trading at almost the same 10-year yield despite a BBB+ rating."
"Markets are still making up their minds about the aftermath of the upcoming confidence vote and don’t seem in a rush to price snap elections as the baseline scenario. The alternative – this or a new government watering down spending cuts enough to gather parliamentary support and deliver some fiscal consolidation – is plausible, though admittedly a relatively narrow path given the heightened scrutiny it faces."
"Anyway, markets appear to have absorbed the initial bad news and might stabilise ahead of the actual vote on 8 September. We think EUR/USD can hold above 1.160 and ultimately make its way back to 1.170."
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.