Will Election Uncertainty Derail the Euro’s Rally?


Mar. 6 2018, Published 8:05 a.m. ET

Euro extended losses last week

The euro-dollar (FXE) exchange rate closed the week ending March 2, 2018, at 1.23. FXE appreciated 0.20%—compared to the US dollar (UUP). The major factors that drove the euro in the previous week were the election and political uncertainty in Italy and Germany. Over the weekend, Italy had a hung parliament verdict. The vote could contain the austerity measures required to improve the economy, which could derail Europe’s economic recovery. There was some positive political news from Germany where the SPD members voted to support German Chancellor Angela Merkel. Economic news from the Eurozone and the US had little or no impact as the focus remained on politics last week.

European equity markets, which are tracked by the Vanguard FTSE Europe ETF (VGK), and their global peers sold-off amid trade war fears. Germany’s DAX (DAX) fell 4.2%, the Euro Stoxx (FEZ) fell 3.6%, and France’s CAC fell 3.7% for the week ending March 2.

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Euro’s speculative bets remain unchanged

According to the latest Commitment of Traders report released on March 2 by the Commodity Futures Trading Commission, speculators’ positions on the euro increased by 11,851 contracts last week. The total net speculative bullish positions on the euro (EUFX) increased to 137,977 contracts from 126,126 contracts as of February 27.

Euro’s outlook

This week, European markets opened to the news about a hung parliament in Italy. As a result, European markets could witness some pressure. The hung parliament verdict is better than a victory for the party supporting the five-star movement, which would have been a catastrophe for the euro. The ECB (European Central Bank) will hold its March meeting. There could be some changes to the forward guidance and the ECB’s easing bias. During the press conference, investors should watch for any comments about trade war tensions.


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