EUR/USD carries a heavy weighting within DXY – Rabobank

The EUR/USD weighs heavy weighting on the DXY. Markets think a hung parliament would restrict the Far-Right in Europe to enact costly voter-friendly fiscal changes, Rabobank analysts note.

EUR/USD is set to move lower in the coming months

“The direction of EUR/USD carries a heavy weighting within the DXY index. Despite the uncertainties connected with the French election, the EUR/USD is trading slightly above its mid-June levels as the market reacts to an increase in expectations that Le Pen’s far-right party will fail to win an outright parliamentary majority in Sunday’s run-off election.”

“From the market’s perspective a hung parliament should restrict the ability of the Far-Right to enact costly voter-friendly fiscal changes. Like other far-right parties across Europe currently, France’s National Rally party is far-right in terms of national identity and tight immigration policies but is also has a strong social agenda which would be costly in terms of the budget.”

“Looking beyond the short-term fluctuations, our bond strategists see the Bund/Oat spread trading in a wider range going forward and, if the market pays greater heed to both French and Italian budgets, EUR bulls could retreat. This supports the view that EUR/USD could move lower in the coming months.”