EUR/USD: Lecornu makes the Spread flambé

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The euro continued its reflux movement against the dollar, against a backdrop of accentuation of the gap between French rates and the German rate at 10 years. This “Spread” makes it possible to measure the difference in the performance of the debt of the two main economic powers in the euro zone. It makes it possible to measure the more risky character of French debt, a character which has been accentuated since the resignation of Prime Minister Sébastien Lecornu.

Graphically, the rupture of an upward oblique is consumed.

France moves more and more in a polite paralysis, which the traders interpret as regards them as a budgetary paralysis and a risk of contraction of foreign investments.

This departure “clearly shows how the fracture within the Parliament makes it almost impossible to adopt a budget aimed at reducing the deficit,” said Jack Allen-Reynolds, Economics Capital Analyst. “If we still had questions about the degradation of the French note by rating agencies, now we have no doubts,” said John Plassard, Cité Management Private Bank.

This shock wave revives the spectrum of a political blocking with the absence of measures necessary to clean up the trajectory of tricolor public finances. “The resignation of Lecornu plunges the political scene into uncertainty. Investors fear a domino effect on economic and budgetary policy”, analyzes Antoine Andreani, head of research actions at XTB France. Which set out the French 10 years once above his Italian counterpart.

The SPREAD reached 85 base points (0.85 percentage points) after exceeding 88 base points in the morning. “A record since January!”, Note Romane Ballin, bond manager of Auris Gestion.

“Faced with the freezing reception reserved for its new government, S. Lecornu presented its resignation in the morning, less than a month after its appointment. The institutional blocking which paralyzes the Fifth Republic thus seems far from being resolved: whether we are heading towards a dissolution or the appointment of a new Prime Minister, the pressure on sovereign rates should persist. Should we be inquired of a budgetary Shutdown? This appears unlikely: the resigning government will be able, as last year, in December tabled a special bill which allows the State to continue to collect taxes, to renew the credits, and therefore to finance public services, on the same basis as the previous year. “

At midday on the foreign exchange market, the euro was treated against $ 1,1660 approximately.

Key graphics elements

The bullish oblique which prevailed so far (in black on the graph) is now broken, with confirmation sweater. The negative opinion is proposed under this oblique, while the relative force index collapses.

Medium term

In view of the key graphic factors that we have mentioned, our opinion is negative in the medium term on Euro dollar parity (Eurusd).

Our entry point is 1,1659 USD. The lens of our lowering scenario is 1,1203 USD. To preserve the committed capital, we advise you to position a protection stop at 1,1786 USD.

The profitability hope of this Forex strategy is 456 pips and the risk of loss is 127 pips.

Daily data graphics