EUR/USD could drop to parity in June – Natixis

Omkar Godbole FXStreet Contributor

Natixis ‘Strategic Daily’ note says the political risks will end up weighing on the EUR/USD in the short-term and contribute to the pair correcting towards parity come June.

Key points

First up, there are the general elections in the Netherlands, the risks attached to this event not having been priced in sufficiently considering that the PVV, the eurosceptic party led by Geert Wilders, is still in the lead in the opinion polls. As the PVV is credited with 35 seats but needs 76 for an absolute majority, it will not be able to govern without forming a coalition government, but its victory will probably be met with a frosty response by the markets, especially as there are elections shortly afterwards in France, the outcome of which are most uncertain.

The bond market is starting to price in the French risk, the OAT-Bund spread having widened from 30bp before Trump’s election to 76bp this Monday after the speech by François Fillon. The market is also bringing pressure to bear on Italy, so that even though the probability of early elections has subsided, the BTP-Bund spread reaches 200bp.

Even though the US dollar is on a negative run and at Donald Trump’s mercy (since the Federal Reserve is conspicuously absent), our view is that European political risks will end up getting the better of the euro and contribute to the EUR/USD correcting toward parity come June.

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

GBP/USD strengthens to near 1.3400 as UK political risk fades

The GBP/USD pair gathers strength near 1.3395 during the Asian trading hours on Thursday, bolstered by fading domestic political uncertainty. However, hawkish minutes from the Federal Reserve and renewed tensions between the US and Iran might support the US Dollar and cap the upside for the major pair.

EUR/USD sticks to positive bias above 1.1400; Mideast tensions cap gains

The EUR/USD pair attracts some buyers for the second straight day, though it lacks follow-through and remains confined within the previous day's range during the Asian session on Thursday. Spot prices currently trade around the 1.1420 area, up less than 0.10% for the day, and remain at the mercy of the US Dollar price dynamics.

Gold sees more pain as Iran tensions revive inflation fears

Gold price reflects signs of softness on Thursday, trading 0.5% lower at around $4,056 during the Asian trading session. The precious metal is under pressure as Middle East hostilities have revived fears of high global inflation, a scenario that discourages major central banks from easing monetary conditions. This framework bodes well for interest-bearing assets, but diminishes the appeal of non-yielding assets, such as Gold.

Ripple and Stellar extend downside as weakening technicals

Ripple and Stellar extend losses on Thursday, correcting over 6% and 10%, respectively, so far this week. XRP falls below $1.090, while XLM posts a fifth consecutive day of correction and closes below key support levels.

2.50%: Why the Kiwi's first hike in three years is a wager on a number nobody can see

The Reserve Bank of New Zealand (RBNZ) raised the Official Cash Rate (OCR) by 25 basis points to 2.50% at 02:00 GMT on Wednesday, its first hike in three years and the moment the bank that cut deeper than any G10 peer last cycle turned to face the other way.

Bye, forward guidance: How to trade when central banks choose silence

Central banks have spent years telling markets what might come next. Now, traders face the possibility that they say a lot less. From the Federal Reserve to the European Central Bank and the Bank of England, policymakers are pushing back against forward guidance.