EUR: Bracing for the French first round – ING

It looks like investors are already bracing for the outcome of Sunday’s first round of French parliamentary elections. The 10-year OAT-Bund sovereign yield spread is trading at a wide 82bp and EUR/USD is trading around 1.07, Global Head of Markets at ING Chris Turner notes.

Euro to go back under 1.07 ahead of the French elections

“The question for the market is whether a Le Pen government looks at the French bond market and starts dropping some of its plans for seemingly unfunded tax cuts. Our eurozone team suspects it will be too early for a new government to substantially water down its pre-election pledges and that it may well be tough road into September.”

“Ahead of the weekend election, today sees the European Central Bank (ECB) release its consumer inflation expectations for May. Three-year expectations currently sit at 2.4% and a drop under there would add to expectations that the ECB could cut again in September.

Today’s EUR/USD game plan could see a brief spike to 1.0745/60 on the lunchtime US inflation data, but we would not be surprised to see it end the day back under 1.07.