EUR: Eyes on 1.180? - ING

EUR/USD rose again yesterday, but primarily on the back of US Dollar (USD) weakness, as markets had largely priced in that French PM Lecornu would survive the no-confidence motions, ING's FX analyst Francesco Pesole notes.

USD remains in a fragile spot

"Lecornu effectively traded political stability for more budgetary difficulties by freezing the pensions reform. This - aside from very few guarantees on the durability of this new government - is keeping the 10Y OAT-Bund spread above 75bp, some 10bp wider than mid-August."

"That is, however, enough for the Euro to price out a good portion of the French risk premium, and barring a new government collapse before year-end, this should allow EUR/USD to refocus on canonical market drivers (rates and equities). USD remains in a fragile spot, and a break above 1.750 is surely possible, with 1.180 starting to look very realistic again. The upcoming meeting between Trump and Putin could also attract EUR-positive speculation on a Ukraine truce."

"Our macro team has published a preview of the Dutch election. We don't currently see it as a major risk event for the euro: a fragmented parliament is the most likely outcome, and most parties are unwilling to form a government with Geert Wilders' Eurosceptic PVV party, which is leading in the polls."