EUR USD (1.2975) The importance of the US non-farm payrolls for the EUR/USD was short-lived as Europe delivered the much-awaited electoral results. Although in power on the back of an anti-austerity wave, the post-election tone of the new socialist president in France is likely to be more compromising than suggested on the campaign. He is likely to reiterate his demand to add new growth measures to the fiscal pact. Negotiations between the eurozone’s largest states will also be impacted by having new people at the table with fewer sunk costs. However, observers think that Holland is pragmatic enough to know that bond markets will be tolerant to changes on austerity and on the tax front only to a certain extent. The fragmented results of the Greek elections have perhaps delivered a more intractable situation because the next tranche of the Greek rescue package is at stake, should the new coalition choose to renegotiate the bailout package. In any case, near-term, the markets are likely to be dominated by the headlines that Greek coalition-building (or new elections) may deliver. More importantly, as the example of certain sovereign wealth fund reducing exposure to eurozone bonds shows, even the investors with the longest perspectives have seen the need to shift portfolios away from peripheral sovereign debt. On Friday the euro dipped around 200-pips, but was contained by our support at 1.2960 (weaker). Below there, it would be vulnerable to a slide to 1.2805. To the upside now, the tough points are at 1.3085 and at 1.3105.
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Deutsche Bank