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Announcing the early parliamentary elections in France, Emmanuel Macron hoped that people would shake themselves up and show confidence in his Renaissance party after its defeat following the results of the European Parliament vote. In fact, it turned out differently. Polls show that the party in power is losing not only to the right-wing led by Marine Le Pen but also to the Socialists. The program of the latter, which saw the light, became another blow for EUR/USD.
Ratings of French parties
The union of four parties, the Left Alliance, which includes the socialists of former President Francois Hollande, intends to abandon the policy of austerity - the EU fiscal pact regulating public debt and budget deficit. Domestic economic policy will include an increase in annual leave from 5 to 6 weeks, a reduction in the retirement age to 60 years, and the restoration of the wealth tax, which was abolished by Emmanuel Macron.
According to Finance Minister Bruno Le Maire, this program is complete madness. It guarantees a credit rating downgrade, mass unemployment, and withdrawal from the European Union. As soon as EUR/USD heard about Frexit, the quotes immediately collapsed below 1.07.
It is not surprising because the yield gap between French and German bonds, the main indicator of political risk in Europe, jumped at the fastest pace since 2011, the CAC-40 stock index lost about 6% in a week, the capitalization of local stocks decreased by €100 billion, and the euro became the worst performer of the five-day period among the Big Ten currencies.
Dynamics of the French and German bond yield spread
The British Prime Minister had earlier scheduled parliamentary elections in the country for July 4, which his Conservative party would definitely lose. However, the Labor Party, which is ready to celebrate the victory, does not have such a radical program as the Left Alliance and the National Rally in France. The pound can feel at ease.
The policy managed to ruin EUR/USD even against the background of high global risk appetite, falling Treasury bond yields, and expectations of a reduction in the federal funds rate. Goldman Sachs warns of increased volatility in financial markets due to the approach of the US presidential election and increased economic problems. As a result, the US dollar will start to be bought up due to its status as a safe haven asset.
Perhaps in 2025, the euro will recoup due to the Fed's intention to aggressively cut rates, but in the next 3-4 months, the main currency pair risks coming under serious pressure.
Technically, the EUR/USD daily chart is fighting for an important pivot point - the 1.07 level. Its breakthrough will increase the risks of restoring the downtrend and will become the basis for increasing short positions formed from the level of 1.0845 for the euro against the US dollar.
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