EUR shrugs off French political turmoil – Commerzbank

Meanwhile, the euro appears unaffected by events in France, even though France has significantly larger oustanding bond levels than Greece did. This is hardly surprising, however, as we continue to see primarily dollar weakness leading to upward movements in other currencies, rather than any intrinsic strength in the euro. But regardless of this fact, the euro could have weakened somewhat due to concerns about a new euro zone crisis, couldn't it? It did do so briefly when the issue of a vote of no confidence arose in Paris. However, it quickly resumed its upward movement afterwards.

Dollar weakness drives euro gains, not euro strength

"Why that? On the one hand, the really big movements are currently coming from the dollar anyway, as we recently explained here. On the other hand, Monday's result was to be expected, so there was no reason to panic about the collapse of the government in France. Now we have to wait and see what happens next."

"But one very strong argument for keeping calm is the ECB. And I'm not referring to tomorrow's meeting, which is unlikely to deliver any surprises anyway. Rather, I'm referring to the fact that, if the worst comes to the worst, the ECB would probably act as a “lender of last resort,” as it did during the euro zone crisis. It would probably buy government bonds again to prevent spreads from widening too much."

"I do not rule out that the ECB will issue a warning tomorrow to France or, more generally, to the euro zone countries regarding budgetary discipline and the need for reforms. All in all, however, the market can assume that there will be no new sovereign debt crisis. So it's no big deal and no reason to sell the euro."