EUR/USD Weekly Forecast: Traders Pummel Euro Amidst New French (Political) Revolution

EUR/USD Key Points

• Emmanuel Macron’s decision to call a snap election at the end of the month has thrown France’s political parties into disarray.
• The French-German 10yr yield spread has blown out to near 80bps, the highest level since the height of the sovereign debt crisis in 2012.
• EUR/USD 1.0725 is now likely provide resistance on near-term rallies, opening the door for a continuation toward the mid-1.0600s or even the year-to-date low near 1.0600.

EU Parliamentary Election Fallout: France in Turmoil

Last week’s EUR/USD article featured a section titled “EU Parliamentary Elections Unlikely to Drive Markets”… and that was dead wrong in retrospect. As you’ve no doubt heard by now, the EU elections led to French PM Emmanuel Macron calling for a snap election later this month, resulting in a week of absolute turmoil in French politics.

Now, it looks like Macron’s coalition could slip to third place in the election and the competing conservative Republicans have expelled their president. For traders, one of the big concerns is that the far-right party, led by firebrand Marine Le Pen, could ascend and introduce dramatic reforms. As the chart below shows, the market is taking notice, driving the spread between French and German 10yr yields to nearly 80bps, the highest level since the height of the sovereign debt crisis in 2012:

Source: TradingView, StoneX

The next two weeks will show whether the more centrist parties are able to get their proverbial houses in order, but if they don’t, this spread could continue to widen, and EUR/USD could remain under pressure.

UK Economic Data for EUR/USD Traders to Watch This Week

After a quieter week for Eurozone economic data last week, the calendar picks up slightly this week, highlighted by Friday’s PMI surveys that provide one of the best measures of on-the-ground economic activity on the continent:

Monday

Italian Inflation

Spanish Trade Balance

Eurozone Labor Costs and Wage Growth

Eurozone Consumer Inflation Expectations

Tuesday

Eurozone Inflation Rate

German ZEW Sentiment Index

Wednesday

Eurozone Current Account

Eurozone Construction Output

Italian Current Account

Spanish Consumer Confidence

Eurogroup Meeting

Thursday

German PPI

Italian Construction Output

Eurozone Flash Consumer Confidence

Ecofin Meeting

Friday

French Business Confidence

Eurozone PMIs

Euro Analysis – EUR/USD Daily Chart

Source: TradingView, StoneX

As the chart above shows, EUR/USD fell four out five days last week to finish below key previous support at 1.0725. As we head into a new week, that level is now likely provide resistance on near-term rallies, potentially opening the door for a continuation toward last week’s low in the mid-1.0600s or even the year-to-date low near 1.0600 if France’s political situation continues to worsen. Only a break and close back above 1.0725 would flip the near-term bias back to neutral at this point.

-- Written by Matt Weller, Global Head of Research

Check out Matt’s Daily Market Update videos on YouTube and be sure to follow Matt on Twitter: @MWellerFX