EUR/USD: Another French political risk? - OCBC

Euro (EUR) fell amid broad US Dollar (USD) strength, as US core goods CPI rose. EUR was last at 1.1622, OCBC's FX analysts Frances Cheung and Christopher Wong note.

Risks are somewhat skewed to the downside

"This is despite European data coming in firmer than expected - ZEW survey, industrial production. Bearish momentum on daily chart intact while the decline in RSI continued to slow. Risks somewhat skewed to the downside. Next support at 1.1540, 1.1490 levels (50 DMA). Resistance at 1.1670 (21 DMA), 1.1830 levels."

"French PM Bayrou outlined his first budget yesterday, proposing to freeze most public spending, scrapping 2 public holidays (Easter Monday and end of WW2 in Europe) but defence spending will increase. French budget deficit was 5.8% of GDP (almost double EU's official limit of 3%). The proposal met with disagreement from the left-wing parties and far-right party."

"Detailed budget bill is likely to go to parliament in October and failure to convince opposition parties to support his proposal is more likely than not to see PM Bayrou face a no-confidence motion then. To recap, a similar no-confidence motion saw the exit of former PM Barnier last year. This is one risk to watch for implication on EUR."