A Perfect Storm Lurks in Europe after Far-Right Gains
2024-06-11
Summary:
The pound fell against the euro after Macron's snap election call and a far-right victory, leading to a decline in the common currency.
The pound eased from its highest in nearly two years against the euro on Tuesday. The common currency tumbled after French President Emmanuel Macron called a snap election after being trounced by the far right.
The political landscape in France has added to an already hectic week for global markets. With US inflation data scheduled for release on Wednesday, coinciding with the Federal Reserve's policy decision at the end of its two-day meeting, investors are bracing for significant market movements.
In the recent European Parliament elections, centrist, liberal, and socialist parties managed to retain a majority. However, eurosceptic nationalist parties made substantial gains, casting doubt on future policy directions. This shift raises concerns about the stability and future of European Union policies.
French President Emmanuel Macron has called for a parliamentary election, with the first round set for June 30. If the far-right National Rally party secures a majority, Macron's influence on domestic affairs could be severely diminished, leading to increased political uncertainty.
While euro assets have been relatively resilient to political upheavals compared to elections in the 2010s and early 2020s, the unexpected outcomes and reactions from France could serve as a wake-up call for investors. The market's stability might be at risk, triggering potential volatility.
Adding to the tension, the UK general election, with Labour currently leading in the polls, is set to follow closely after France's parliamentary elections. This sequence of political events could create a "perfect storm," keeping market prices volatile and investors on high alert.
The pair is forming a falling wedge pattern on the weekly chart and tends to drop further before a reversal signal. But given an RSI flirting with 30, we do not see weakening below 0.8400 as very likely.
Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
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