The European Parliament elections in May will be the major focus in Europe
While the euro is still going to be largely impacted by economic data and the ECB's forward guidance towards normalising policy next year, this is something that could possibly shake things up more than the above over the longer-term.
There will be a host of key positions that will open up in Europe next year but the major focus will be on the May elections to decide on the future of the European Commission presidency, currently held by Jean-Claude Juncker:
What is going to happen?
Although the number of MEPs voting will decrease from 751 to 705 - due to Brexit - this time around, the European People's Party (EPP) is still more than likely to remain as the single biggest party group and that puts Manfred Weber in pole position to succeed Juncker as European Commission president.
Latest opinion polls also continue to put the EPP as favourites but there's still plenty of time between now and May so popularity may change in the coming months.
So, what is the big deal then?
The difference this time around is that we're almost certainly not going to see the typical center-left dominance in European politics as we have seen in the past. Rising populism and waning support for mainstream parties over the past few years have made things more complicated and the larger populist presence threatens to block and stifle crucial decisions such as choosing replacements for the top jobs above and also on plans to reform Europe.
The bigger threat is that if their presence grows large enough and causes the EU to stop functioning efficiently, member governments could seek to bypass parliament and conduct inter-government deals; although this scenario is highly unlikely to materialise.
In essence, next year will be a test of whether or not populists can band together to take on the old establishment in order to exert their influence at the European level.
How does this impact the euro currency?
Rising populism and further euroskeptic influences in parliament will be a growing concern for Europe as it would mean continuous clash of ideals and failure to find a resolution on things like the adoption of the EU budget and especially on the issue of migration.
If that happens, expect the euro to take it negatively as things like that threaten the existing establishment and the way things are done. In short, such issues will raise uncertainty about the future of European politics and as traders, we never like uncertainty.
I reckon the old establishment would still be able to garner enough support and power to keep the status quo running so it'll come down to how much influence can the populist parties have at the end of the day.
As of now, there is a growing feeling that we will start to see a landscape where politicians who are wanting to find a Europe-wide solution to the current issues will be up against politicians who favour safeguarding their national sovereignty. And that will set the tone for the future of European politics over the next five years.
