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Talking Points

- EUR/USD has rallied moderately thus far today after steep declines over the past three weeks around the US Presidential election.

- Euro-Zone political risk remains in focus, with a second French Republican party primary taking place this weekend.

- However, French consumer confidence remained steady at a nine-year high in November as political concerns have yet to spill over into the broader economy.

EUR/USD is rallying moderately Friday after its steep fall from 1.1026 on November 8, the day of the US Presidential election, to a recent low of 1.0515 just yesterday – a drop of just under 5% in just under three weeks. Now, as attention has started to shift away from the US, EUR/USD finds itself trading at just under 1.0600, despite evolving political risk in Europe that has been one of the major factors undermining the exchange rate in recent days

While the prospect of a rate hike by the Federal Reserve next month (December 14) coupled with the continuation of loose monetary from the European Central Bank (December 8) has been the principal driver of EUR/USD weakness – look no further than 2-year yield spreads between US and Germany - a series of upcoming national votes across Europe have started to undermine sentiment too. While much attention has been rightly paid to the upcoming Italian constitutional referendum on December 4, traders shouldn’t look past this weekend’s French Republican Party primary after last week’s surprising results.

On Sunday, two former French Prime Ministers will compete to be France’s center-right Republican Party’s candidate in the Presidential election next spring, with François Fillon favored to win the run-off against Alain Juppé. In the first round last Sunday, Fillon took 44% of the vote, compared with 29% for Juppé. With France’s Socialists in disarray (sitting French President Francois Hollande, of the Socialist Party, is currently polling as low as 4%), that could mean the election becomes a straight fight between Fillon and the far-right National Front’s Marine Le Pen. Le Pen, France’s version of Nigel Farage or Donald Trump, has pledged to hold a referendum on whether or not France would stay in the European Union and thus implicitly, the Euro.

Earlier, despite the political developments in France over the past several weeks, data showed that French consumer sentiment remained at a nine-year high this month. An index calculated by French statistics agency INSEE stayed at 98, as expected, as job concerns faded. With few important data releases due Friday, inspiration for EUR/USD’s rally may also be coming from a report that the European Central Bank could delay any extension of its monetary-easing policy from its December meeting to the next one in January.

Chart 1: EUR/USD 5-Minute Chart (November 24 to 25, 2016 Intraday)

EUR/USD Rallies as French Confidence Remains High Ahead of Next Primaries

For now, EUR/USD is rallying in thin post-Thanksgiving trading amid a sparse economic calendar. The pair was last seen trading at 1.0588, but had rallied as high as 1.0615 earlier in today’s session. With SIFMA’s recommended closure for US bond markets, today’s session, barring any unforeseen news across the wires, market activity should begin to quiet down some once we get past the goalpost for today’s minor US economic data due out at 8:30 EDT/12:30 GMT.

Read more: Dollar Extends Rally into Holiday Liquidity Drain

--- Written by Martin Essex, MSTA, Analyst and Editor

To contact Martin, email him at