Fundamental Analysis

Euro Quiet On Absence Of Fundamentals

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The euro is showing little movement in the Monday session, as EUR/USD is trading at the 1.12 level. There are no economic indicators in the eurozone or the US. We'll hear from Jens Weidmann, head of the German central bank, and two FOMC members will also deliver remarks.

In France, President Emmanuel Macron easily won a majority in presidential elections. Macron's En March party won about 61% of the vote, somewhat lower than recent polls, which had predicted that Macron would win as much as 80% of the seats in the National Assembly. Still, it's an impressive victory for the young and charismatic Macron, whose party is barely a year old. Macron has promised to relax regulations and reform labor laws in order to make France more competitive, but France's powerful trade unions are sure to push back against any legislation that will take away rights or benefits from workers. The unions have not hesitated to go on strike or lead mass protests in past conflicts with the government, so it will be a challenge for Macron to implement reforms while keeping the unions onside.

Brexit negotiations officially start on Monday, but the mood is likely to be stiff and subdued as British negotiators meet with their European counterparts. With Theresa May struggling to put together a government, her position is much weaker than before the disastrous British election, and the Europeans are still smarting from the Brexit vote, which stunned the continent. Philip Hammond, the British finance minister, has said that he wants a business-friendly and pragmatic Brexit and that no deal would be bad for the UK. His approach is much more conciliatory than that of May, who had threatened to leave without a deal. As for the Europeans, they have insisted that there will be negotiations about a new trade deal, prior to progress being made on three key issues: (1) the legal status of EU citizens in the UK; (2) the status of the border between Ireland and Northern Ireland; and (3) the financial obligations of the UK to the EU. On the weekend, the EU's Economic and Financial Affairs Commissioner Pierre Moscovici, said that the European position was not ‘hard ‘ or ‘soft'. but rather ‘amicable and firm'. There is little doubt that the EU will be firm, but based on the bad blood between the two sides, ‘amicable' could be a stretch.

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