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Euro the laggard on the day amid political anxiety

From earlier: Far-right movement makes waves in Europe over the weekend

That is the main development that is weighing on the euro currency to start the week. In particular, the situation in France and Germany. The former has seen Macron call for a snap election while the latter sees Scholz’s SPD faction suffer a blow in the hands of the CDU and far-right AfD.

The fear now is that all of this could once again lead to a widening between the bond yields spread in the region. As always, the measure of risk in that regard is the spread between periphery yields to bund yields.

As much as there has been bullish whispers surrounding the euro, I wouldn’t undermine the latest bout of political risk. We have seen in the past how that can hurt the single currency and this time should be no different.

Looking to EUR/USD, the pair is facing a big technical setback to start the week:

The gap lower today takes out the 1.0800 mark along with the 200-day moving average (blue line). That sees sellers exert more downside momentum and are in firm control of the pair now. The 50.0 Fib retracement level at 1.0758 is being challenged right now. There is then minor support from the 61.8 Fib retracement level at 1.0721 next. Further bids are lined up closer to 1.0700.

If the political angst seen over the weekend starts to gather more traction in the weeks/months ahead, I wouldn’t rule out this being a strong counter-weight when up against the narrative of the ECB keeping rates on hold. That could very well keep EUR/USD anchored between 1.05 to 1.08 in the bigger picture.

This article was written by Justin Low at www.forexlive.com.

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