Euro: Fiscal risks point lower against US Dollar - MUFG
Derek Halpenny at MUFG argues that widening French OAT/Bund spreads and global fixed income risk aversion are adding to negative momentum for the Euro. Political and fiscal uncertainties in France, including a large planned consolidation and budget risks, weigh on sentiment.
MUFG's Derek Halpenny explains that widening French OAT/Bund spreads and global fixed income risk aversion are contributing to the decline of the Euro against the US Dollar. Political and fiscal uncertainties in France, such as a significant consolidation plan and budget risks, are adversely affecting sentiment. MUFG identifies 1.1340 as a key support level for EUR/USD, with a breach potentially driving losses down to the 1.10-1.12 range.
The recent OAT/Bund spread widening to 110 basis points, the highest since 2012, appears to be driven by global investors' shift towards reducing duration and increased risk aversion in fixed income markets. Although no major ratings downgrade has occurred, French political risks and the upcoming 2027 budget are likely to intensify market risks for the Euro.
The 38.2% retracement support level, at 1.1340, is considered the next crucial point for EUR/USD, with a breach potentially triggering a further decline to the 1.10-1.12 range.
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