Euro Faces 'Nasty Move Lower' on Political Uncertainty: Analysts

The euro, which fell to its lowest level in more than three months on Monday after elections in France and Greece saw voters rejecting pro-bailout policies, is likely to drop further, say analysts, unless the new governments continue with austerity measures to reduce their debt burden.

Euro coins
Euro coins

Forex strategists expect the single currencyto fall to 1.27-1.25 against the U.S. dollar in coming months given the political uncertainty. “Sentiment is very bearish, The euro is under a lot of pressure right now. I get the feeling that it’s going to be a nasty move lower for the euro finally,” John Noonan, Senior Forex Analyst with Thomson Reuters in Sydney, said on CNBC Asia’s “Squawk Box”.

“If we get below 1.2950 where there’s some technical support, I really don’t see any support ahead of that at the 1.2650, 1.27 level,” he added.

In Asian trade on Monday, the euro fell to $1.2927 at noon Singapore time (4 a.m GMT) after Socialist Francois Hollande won the elections on Sunday to be France’s next president, ousting incumbent Nicolas Sarkozy who had pushed for strict fiscal policiesaimed at managing huge debts. In Greece too, the pro-bailout parties were given a beating, winning just over 32 percent of the vote and 149 seats out of the 300-seat parliament.

The election results are weighing on markets and how much the euro declines from here is “an open question,” John Horner, Forex Strategist with Deutsche Bank in Sydney told CNBC. “The mid-year forecast for euro has been for some time a move towards $1.25 near the lows we saw last year, and so that certainly looks achievable at some stage in the coming months, given that the growth numbers in Europe were very disappointing last week,” he said.

The currency last traded below $1.27 on January 16, when it closed at $1.2657 after Greece had markets on edge over debt-restructuring talks with its creditors.

David Roche, President at Independent Strategy, a London-based research firm, says the direction of the euro depends on the policy response to the backlash against austerity. “I do think that we’re going to go to the $1.27 level for the moment. Because then, we’ll get a reaction from the ECB.”