EUR/USD set for more pain, Macquarie says, as political uncertainty strikes again

Investing.com -- EUR/USD suffered a blow Monday as the winds of political uncertainty made a swift reappearance on the continent, encouraging further calls of more pain ahead for the single currency.  

"We stick to our view that EUR/USD gets to 1.05, and lingers there in H2 2024," Macquarie said in a Monday note, after a rightward shift in European parliamentary elections and surprise snap election in France saw European Union political uncertainty climb back to the top of the agenda. Macquarie made the call for the euro to drop to $1.05 in mid-May.

Ahead of the European parliamentary results, Macquarie had warned that "gains for the populist-right would augur fresh concerns about the political stability and unity of the European Union."

Adding fuel to the burning embers of political uncertainty, French President Emmanuel Macron called a snap election, a move that is widely seen a major gamble for his Ensemble party.

Those forthcoming National Assembly elections Jun. 30 and July 7, could see the French president's coalition "lose some seats to the RN," Macquarie adds, while his Ensemble party "certainly won't become a majority coalition."

The call for political uncertainty to hang heavy on the euro has history on its side. In 2017, the UK's decision to leave the EU following the 2016 referendum, sparked a wave euroscepticism, triggering concerns about the future of the European Union and pushing the euro below parity against the dollar. 

"We expect some of the same pressure now too," Macquarie warned. 

Dollar strength, meanwhile, is also likely to keep a lid on the euro, as the Fed is expected to deliver a 'hawkish' pause on Wednesday by lowering its rate-cut outlook to two cuts from three previously for this year.

A hawkish Fed would come at a time when the ECB, the BoC, the SNB and the Riksbank "have eased monetary policy, it may bring into sharper relief the Fed's relative 'hawkishness', and thus favor the USD," Macquarie added.