Macro Update: EURGBP Analysis – 5 July 2024

EURGBP remains range bound between 0.8400 and 0.8500 following Eurozone CPI and the UK election

Eurozone CPI in June has given no reasons for a July ECB cut so focus has been pushed past the summer break to September.

Before we get there, we have the matter of the French elections to deal with this weekend. There’s a very strong possibility that we see a hung parliament, or some form of weak coalition cobbled together to try and limit the impact from Le Pen potentially holding the most seats in parliament. Whatever the outcome, it spells political uncertainty for traders and investors and that’s usally a negative for the assets of the country concerned.

With the second election this Sunday, the Euro faces some downside risk again. In market terms, the worst case outcome would be a Le Pen majority, so we may see EUR reacting like it did after the first round (going higher), when voting showed that despite her party’s strong performance, it was unlikely she would get a majority if those numbers were reflected in the second round. Polling since then has largely confirmed the same thing. So, no majority for Le Pen could be mildly positive initially but it would also likely mean a hung parliament, so that positiviity might be fleeting if the political uncertainty then drags on and no government is formed for a while.

That would likely see investors getting out of French assets, which could see the new politically stable UK benefit from some of those flows. Thus, EURGBP could be set to move lower. Whether that sort of move would be enough to test or even break the 0.8400 level remains to be seen. From a trading standpoint it’s pretty simple. It’s 0.8400 to 0.8500 and the range either holds, or it breaks.

EURGBP 4 Hour chart

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