EUR/USD: Weakened configuration after the European elections

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Already affected by the content of the federal report on American employment on Friday, the Euro: Dollar currency pair saw its releases accelerate in the wake of the results of the European elections, which saw far-right, sovereignist parties , populist and for some anti-EU, progress with the exception of Poland.

In the wake of the results in France in particular, President E Macron announced the dissolution of the National Assembly, inviting voters to renew the deputies at the end of June for the first round.

“This situation of uncertainty could create a chaotic evolution of the markets during the period. However, the uncertainty of the arrival to power of the extreme right in France could be put into perspective, with the policies pursued by Giorgia Meloni in Italy , whose party also collected the largest number of votes in the European election”, underlines Sebastian Paris Horvitz, director of research at LBPAM.

For Alexandre Baradez (IG France), “the fall in the euro against the dollar of around 0.5% does not reflect general panic, contrary to what we saw during the debt crisis in the region. euro for example, but a certain distrust.”

As a reminder on Friday, it was American employment which mechanically put pressure on American sovereign bond yields, with a fairly firm NFP (Non Farm Payrolls).

In detail, if the report highlighted a slight increase in the unemployment rate, to 4% of the active population, the increase in average hourly wages, at +0.4%, exceeded the target (+0.3 %). But it is above all the dynamic of job creation which is of concern, after an ADP survey and new job offers (JOLTS) which were rather lenient this week. The American economy created 272,000 jobs in the private sector, excluding agriculture, exploding the target (182,000) and the month of April (165,000).

In the wake of this publication, the American 10-year bond rose again, now close to 4.43%. Enough to put more pressure on the Fed, by further reducing its window for an initial rate cut. According to the CMEGroup’s FedWatch tool, September still holds the lead with 69% probability of a first action on the Fed Funds, while the ECB began its monetary shift yesterday. As a reminder, this valuable tool makes it possible to evaluate the probabilities of changes in federal rates and American monetary policy based on the price of 30-day federal funds futures contracts.

The Fed will meet this week its Monetary Policy Committee (FOMC). If a status quo on the rates is acquired, the meeting will be interesting, in particular because of the publication of the “dot plots”, this famous dot graph, illustrating the median projection of the members of the central bank for the key rates for the months to come .

At the heart of last week, the ECB pulled the rug out from under the Fed’s foot, by committing first to a cycle of rate cuts. This initial loosening of the tap could, however, be followed by a long pause.

“Monetary policy remains restrictive, growth remains weak across Europe and very weak in its hard core, particularly in Germany,” notes Michael Browne, CIO at Martin Currie, a subsidiary of Franklin Templeton. “This is the first in a long series of declines, the only question being how long they will take place, with some wanting to go faster, others slower, but the destination is clear. This is the first time that the ECB has entered the rate reduction phase before the Fed.”

Forex traders have just become aware of the Sentix investor confidence index in the Euro Zone, which rose to 0.3.

At midday on the foreign exchange market, the Euro was trading against $1.0740 approximately.

KEY GRAPHIC ELEMENTS

The currency pair recorded a double top at $1.0885 which further asserts itself as a resistance level, below which the bearish bias can regain its rights. Especially in the event of rapid reintegration of the lower part to an oblique (drawn in black), a major graphic reference point. This test is underway, in conditions of challenging volatility. Negative review maintained.

MEDIUM TERM FORECAST

Considering the key graphical factors that we have mentioned, our opinion is negative in the medium term on the Euro Dollar (EURUSD).

Our entry point is at 1.0744 USD. The price target for our bearish scenario is at 1.0551 USD. To preserve the invested capital, we advise you to position a protective stop at 1.0831 USD.

The expected profitability of this Forex strategy is 193 pips and the risk of loss is 86.999999999999 pips.

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