Euro (EUR/USD, EUR/GBP) Analysis
- Euro sell-off continues as periphery bond premium spikes higher
- EUR/USD falls – US CPI and/or the FOMC meeting could extend the pain
- EUR/GBP falls through major level of support with little to stop it
- The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library
Euro Sell-off Continues as Periphery Bond Premium Spikes Higher
The Euro continued to sell-off after Emmanuel Macron’s dissolved parliament and called for a snap election after his party’s dismal showing in European elections. The high stakes wager centers around the belief that voters will side with President Macron’s party when it really matters, as the European elections have a history of being a ‘protest vote’ to express dissatisfaction with the status quo but ultimately voters have backed away from populist parties when electing lawmakers.
However, the first round of elections takes place as soon as the 30th of June with a wave of populist parties sweeping across Europe, most recently seen in Italian politics and now, seemingly making a reappearance in France.
The chart below shows the rise in risk premium for French Government bonds (representative of a higher perceived risk of holding French bonds) over safer German bonds of the same duration. When riskier bonds in the euro zone start to sell-off, investors may recall the European debt crises of 2011 when periphery bonds sold-off massively and the euro followed suit. The chart below shows the recent spike higher in French-German yields while EUR/ USD continues its sell-off which, to be fair, originated on Friday after a massive upward surprise in US NFP data.
EUR/USD Alongside French-German Bond Yield Spreads
