EUR: Still bearish towards 1.0340 - Natixis

The EUR/USD corrected throughout the course of the last week, mainly because of European political risks, in particular in France notes Nordine NAAM, Research Analyst at Natixis.

Key Quotes

“The latest opinion polls revealed that populist parties have opened up quite a lead in the Netherlands as well as in France, increasing the probability that a referendum over continued Eurozone membership will be held in one or other of these countries, which would be damaging for European construction. French and Italian CDS have shot up sharply, while the OAT-Bund risk premium briefly passed above 80bp. The EUR/USD pulled back below 1.05 for a short while before recovering late in the week when political risks subsided.”

“In the short term, the EUR/USD’s performance will ride on the direction taken by the US and on news regarding the French political landscape. A number of key indicators will be published, notably business surveys by the European Commission, which are expected to hold on high. Most importantly, there will be the February flash estimate, with headline inflation expected to reach 1.8% year-on-year, while core inflation should remain very low at 1.0% year-on-year. In this environment, we remain bearish on the EUR/USD, with a 1.0340 target for coming weeks.”