EUR/USD weighs heavily on DXY. Markets think an indecisive parliament would restrain the far-right in Europe from enacting costly, voter-friendly tax changes, Rabobank analysts note.
EUR/USD is set to move lower in the coming months
“The direction of EUR/USD has significant weight within the DXY index. Despite uncertainties related to the French elections, EUR/USD is trading slightly above its mid-June levels as the market reacts to a rise in expectations that Le Pen’s far-right party will fail to secure an outright parliamentary majority in Sunday’s runoff election.”
“From a market perspective, a swing parliament should restrict the far-right’s ability to enact costly, voter-friendly tax changes. Like other far-right parties in Europe today, France’s National Rally party is far-right in terms of national identity and strict immigration policies, but it also has a strong social agenda that would be costly in terms of the budget.”
“Looking beyond short-term fluctuations, our bond strategists see the Bund/Oat spread trading in a wider range going forward and if the market pays more attention to both the French and Italian budgets, EUR bulls could pull back. This supports the view that EUR/USD could move lower in the coming months.”
Source: Fx Street
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