February has been cruel to the euro. Of the sixteen sessions this month, counting today, the euro has risen in four, and two of those were last week. Its new four-day slide pushed it below $1.05 for the first time in six weeks as European markets were opening. The $1.0560 area that was broken yesterday, and provided a cap today is 61.8% retracement objective of last month’s rally. Recall that the multi-year low was recorded at the start of the year a little below $1.04.
The main weight on the euro is presently not economic but political. Recent developments in France underscore our argument that the success of the populist-nationalist forces requires some sort of help from the mainstream parties. This was clearly the case in the US and UK, where no populist party was elected, but instead, the populist agenda co-opted by the center-right. The non-binding UK referendum turned into a binding decision with the smallest of majorities for such an important change. It has yet to be seen how President Trump relates with the Republican Party. However, it is strikingly different that what the Democrat leadership did in 1972. Then the left-wing of the Democrat Party succeeded in nominating McGovern, and the leadership of the party abandoned him, helping to produce a landslide victory for Nixon.
In any event, the left in France is finding it difficult to put down egos and the hubris of small programmatic differences to unite behind a single candidate. Macron appears to be doing a good jump of shooting himself in the foot, allowing Fillon, under a cloud of scandal, to recapture second place in the polls. In Italy, there is a risk that the largest political coalition in Italy, the PD, may split with the old guard and the left-wing possibly forming two new parties. This is seen working to the 5-Star Movement’s favor. The 5-Star Movement is underscoring another observation of populism-nationalism: it may work better as in opposition rather than as a governing party.
