EUR/USD: The double-edged sword of French politics – ING

FXStreet Insights Team FXStreet

EUR/USD is enjoying a little more support as US rates soften and French PM Sébastien Lecornu looks set to survive two no-confidence votes in French parliament today – this after the Socialists were bought off with a delay in pension reforms, ING's FX analyst Chris Turner notes.

EUR/USD to trade at 1.20 in the end o the year

"The euro and French government bonds see this as good news for the short term, although for the longer term the reversal of pension reforms merely makes the job of fiscal consolidation that much harder."

"So far, bond investors believe the dropping of pension reforms is the lesser of two evils (the alternative being early elections) and have taken OAT:Bund spreads back inside 80bp. Presumably, FX traders will take their cues from the bond investors, and if this week's move is good enough for French debt, it is good enough for the euro as well."

"It's hard to see EUR/USD breaking above the 1.1685/1730 area in the near term. However, the longer EUR/USD can consolidate here, the closer it comes to the seasonally bullish period of November and especially December. We retain a 1.20 year-end call."

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