How the Euro will be impacted by the results of the EU parliamentary elections?

Published date: 23/05/2019

With the EURO still struggling, now traders are trying to anticipate if the pain will continue or if the results of the upcoming European elections are capable of changing the trend.

Financial markets will be significantly impacted if Eurosceptic representatives dominate the parliament. EURUSD has been falling 8 consecutive days and is now approaching the 1.11186 level, a zone that had not been tested since April. Until this moment, there is no clear sign of strength.

In the last two years, Euro’s price action has been directly impacted by many extremist political actions. The rise of populist representatives and their measures has changed the direction of EUR pairs repeatedly. Moreover, negative outcomes have governed the reporting season,  creating an alarm on the speed of growth. Specifically, this morning, Manufacturing and Service PMI from the Euro area underperformed significantly if you compare it with the previous month. So, where is political destabilization leading the Euro? To an uncertainty outlook and the loss of a huge mass risk-averse investors.  

Topics such as the Brexit, commercial frameworks and the sustainability of credit instruments in countries such as Italy will be a breaking point during future negotiations and a true nightmare if centre-right and centre-left politicians are pressed by a populist possible majority.  Also, it doesn't seem like the period of uncertainty won't end any time soon, as the European Central Bank monetary policy is at risk of being altered after Draghi's exit.

Polls are anticipating not so cheerful results. Outcomes about the 751 elected members may fragment the parliament once more with the eyes of investors on the representatives from the UK, France, Germany, and Italy.

If Lega Nord wins in Italy, then traders will be projecting an upcoming election to restructure the Italian government. General distress is also in the air M.Salvini publicly announced the necessity of ignoring the EU credit upper limit.

On the fresh side, the reform agenda proposed by Macron can be greatly impacted by the representatives chosen. The agenda has been frozen as a result of the protests but experts agreed on the fact that reforms proposed by the French president are still essential for the unity of the EU, so, if Le Pens win some ground, the panorama won't look well.  As for now, polling begins to put the party of Emmanuel (La République En Marche) 50/50 with Rassemblement National from Le Pens.

Finally, regarding UK candidates, any sign of division will just increase the risk or a more difficult process for Brexit negotiations. Polls are putting N.Farage party at the top, followed by The Lib Dems, Labour, and Tories in the last place.

Elections will start today, May 23th, and will end on the 26th. All in all, the solidity of the euro has always depended on how unified is the EU political scope, now the question is…will it be unified enough? Or will it be the beginning of another long-term headache? How the Euro will be impacted by the results of the EU parliamentary elections?


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