EUR USD (1.2975) If the recovery of markets across all asset classes is any indication then the change of guard in France seems to have been accepted as a precursor to a non-confrontational Franco-German relationship. However, the continuing intractable situation in Greece is a reminder that the elections results are about a categorical no to austerity. However, although the rhetorical emphasis is progrowth, there are no concrete pro-growth policy alternatives actually available which the parties in the eurozone can debate, e.g., Germanstyle kurzarbeit, or even cash-for-clunkers. Instead, the IMF continues to insist that it will withhold the next tranche of the rescue bailout if Greece does not present a €11.6bn savings plan. In fact the popular anti-austerity verdict in Greece and France (and in the UK) makes it more and more difficult for the core countries to justify (without seeming to look anti-European) their reluctance to tolerate higher inflation and less austerity in their own relatively robust economies. Even labour market flexibility, which surely falls under the category of ‘structural reforms’, might prove a hard sell in many constituencies. Although there are still many factors that could weigh on the euro it remains rather resilient, buoyed by good (but now weakened) demand at 1.2960. Only a failure there would leave it vulnerable to a slide to 1.2805. To the upside, the main hurdles are now at 1.3150 and at 1.3285. To turn bullish though, the euro must overtake 1.3390.
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Deutsche Bank