France will tackle its budget deficit of 6% of GDP – ING

Markets show renewed focus on French politics. Further EUR/USD consolidation in a 1.11-1.12 range looks likely, notes ING FX strategist Chirs Turner.

EUR/USD is risking early this week

“The new French government has begun to float the idea of ​​raising taxes on businesses and the wealthy as a means of tackling France’s budget deficit of nearly 6% of GDP. This is not a great environment for the euro nor for EUR/USD to break the major resistance at 1.12. A further EUR/USD consolidation in the 1.11-1.12 range looks likely, with downside risks early this week.”

“Elsewhere, one of our favorite currency barometers for the global economic cycle – EUR/AUD – is falling. This move is fully consistent with a bearish environment and a steeper US yield curve. The trend may also be helped by the Australian/Chinese side tomorrow. Here, the Reserve Bank of Australia is expected to continue to hold its semi-requested line, meaning it will be the last of the G10 central banks to cut.”

“And there is speculation that China may announce some domestic support measures tomorrow during a press conference held by the People’s Bank of China and two other agencies. Look for EUR/AUD to retest the last low of 1.6250 and likely head towards the 1.60 area in the coming weeks and months.”