EUR/USD: The single currency under pressure

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While on paper, the American statistics were more likely to make the Dollar less “remunerative”, on the contrary, it is the Euro, the reference barometer of risk appetite, which has recovered without hesitation its bearish course against the green biller, in a gloomy atmosphere after the European elections, and particularly in France, the second economic power in the Euro Zone, after the announcement of the dissolution of the national representation by E Macron.

“The risk imagined by the financial markets would be an RN program accentuating the public deficit,” explains David Taieb, CIO – Listed Assets within Sienna IM.

For several days, the “spread” between France and Germany has widened, due to the political uncertainty caused by the dissolution of the National Assembly by the President of the Republic Emmanuel Macron.

The market inherently fears political risk, which is also coupled with questions about the trajectory of French public finances. This while the American agency Fitch recently downgraded France’s credit rating by one notch.

“While Bruno Le Maire has been trying to convince, for months, the European Commission of its ability to reduce the French deficit below 3% of GDP, here is “potentially” the RN program which could spend more and more more causing an increase in French debt and a surge in the deficit towards 6% of GDP We could then happily imagine that French 10-year borrowing rates would reach the symbolic bar of 4% (indicative sustainability level), leading to this. a shock to the French economy, in particular the banking environment and the financing of SMEs and VSEs.”

In the statistical chapter to follow carefully at 4:00 p.m. the preliminary data from consumer confidence (U-Mich). Currency traders have just learned, at the end of the morning, of the April trade balance figures in the Euro Zone, up by 2.2 billion euros for the balance, beyond the target. Yesterday, across the Atlantic, the producer price indices, stable excluding food and energy, as well as new registrations for unemployment benefits, finally moved away a little from the 200,000 mark.

At midday on the foreign exchange market, the Euro was trading against $1.0675 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 volatility that are challenging. 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 1.0679 USD. The price target for our bearish scenario is at 1.0436 USD. To preserve the invested capital, we advise you to position a protective stop at 1.0761 USD.

The expected profitability of this Forex strategy is 243 pips and the risk of loss is 82 pips.

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