The political elections in Europe that saw both Greek and French voters reject tougher austerity measures in favour of increased spending to boost growth has left the markets subdued with investors consolidating positions or tentatively investing in the USD, which in itself, is still suffering from the hangover of Fridays disappointing jobs data release. Indeed, the announcement of only 115,000 new jobs created in April and unemployment still above 8% in the US is the only reason why the USD hasn’t soared against the Euro. Despite opening slightly up in Asian trading, the EUR/USD was down 0.15%, trading at 1.3031 at time of writing (4.21am GMT) with the pair likely to test the support level of 1.2956 and the resistance level of May 4th’s 1.3178. The euro dropped as low as $1.295 in trading yesterday, its lowest since January, later, and fell to three year lows against the GBP.
Francois Hollande is the first socialist president in France since Francois Mitterand was elected in 1981. The political promises by Hollande – increase spending, reduce retirement age, increase the amount of teachers and cutting energy bills were very similar to Mitterand’s election promises. The result was the French Franc losing about half its value against the USD. As the economy of France makes up about 20% of the 17 member state Eurozone economy – there is the very real prospect that the already very brittle Euro could devalue by 20%. Also worrying investors is Hollande’s pledge for the ECB to buy government debt and ramp up deficit spending – the same program which put Europe in the mess it is currently in.
For the investors, Stocks have typically risen historically when there is more government spending, and this looks like being no exception. The DAX finished 0.12% higher yesterday at 6569.48 whilst Japan’s Nikkei 225 was up 0.65%, valued at 9173.50 at time of writing.
Today, all eyes will be on ECB President Draghi speaking at 1.30pm GMT and then FOMC Fisher speaking at 4.45pm GMT. However, look for a bit of a boost to the EUR when Germany is expected to announce positive industrial figures at 11am GMT.
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