Barnier may turn out to be EUR-positive over time – ING

The news of the week in the Eurozone is that French President Macron has appointed a Prime Minister: former chief Brexit negotiator Michel Barnier. Euro (EUR) and French bond spreads did not really react to the news, which is understandable given broad expectations for a moderate figure in the role of prime minister and very weak recent sensitivity to political developments in the EU (the election surprise German was a case in point), notes ING FX strategist Francesco Pesole.

EUR/USD may bounce back into the upper half of 1.11-1.12

“Barnier’s appointment may be a positive euro on the margin ahead of an intense EU budget season in the next two months. The fact that a candidate has finally been chosen is a signal that the more fringe parties in the French Parliament are opening up to dialogue. Ultimately, however, the euro will react to facts more than expectations regarding the alarming fiscal situation in France, and we are not ready to consider it as a EUR/USD bullish factor until the budget negotiations and each side’s priorities are clarified.

“For now, EUR trading remains strictly a function of US macroeconomic developments. In line with our scenario analysis discussed above, the range of potential EUR/USD moves is wide today. If our ‘125,000 payrolls, 4.4% unemployment’ call is correct, EUR/USD can make a decisive jump back into the upper half of 1.11-1.12, which may be the prevailing range in the September 18 FOMC.”

“The eurozone calendar is unlikely to move the euro today and should not influence the ECB’s path to a likely 25bp rate cut next week.”