The news of the week in the eurozone is that French President Macron has appointed a prime minister: former Brexit Chief Negotiator Michel Barnier. The Euro (EUR) and French bond spreads didn’t really react to the news, which is understandable given broad expectations for a moderate figure in the PM role and recent very muted sensitivity to EU political developments (the German election surprise was a case in point), ING’s FX strategist Francesco Pesole notes.
EUR/USD can take a leap back to the upper half of 1.11-1.12
“Barnier’s appointment can be a EUR-positive on the margin ahead of an intense EU budget season over the next couple of months. The fact that a candidate was finally picked is a signal that the more fringe parties in the French Parliament are opening up to dialogue. Ultimately though, the euro will react to facts more than expectations on the alarming French fiscal situation, and we are not ready to pencil it in as a EUR/USD bullish factor before more clarity on budget negotiations – and each party's priorities – emerges.
“For now, EUR trading remains a strict function of US macro developments. In line with our scenario analysis discussed above, the range of potential swings in EUR/USD is wide today. If our '125k payrolls, 4.4% unemployment' call is right, EUR/USD can take a decisive leap back to the upper half of 1.11-1.12, which can be the prevailing range into the 18 September FOMC.”
“The eurozone calendar will hardly move the euro today and should not influence the ECB’s path to a likely 25bp rate cut next week.”
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