EUR/USD: French political life weighs on the single currency

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The Euro remained under pressure against the Dollar at the start of the week, against a backdrop of a temporary loss of appetite for risk following the announcement of the dissolution of the French National Assembly.

“Fears which relate to the programs of the political blocs which are trying to form themselves…or which have just been formed”, explains Alexandre Baradez (IG France). “Fears relating to the trajectory of the debt but also to questions of regulatory change and taxation.”

The market fears that populist groups, such as the National Rally, will implement policies that would weaken France’s already shaky public finances.

On the other side of the Atlantic, currency traders are digesting the fact that despite encouraging signals on inflation, a scenario involving a single cut in federal rates holds the upper hand.

Christopher Dembik, investment strategy advisor at Pictet AM cites “a single figure: the increase in food prices in grocery stores was only 1% year-on-year in May in the United States – a low point since June 2021.”

“Inflation is falling in almost all segments of the economy. This opens the door to a rate cut by the Fed. Contrary to what the consensus thought at the start of the year, there will not be seven… but only one. When? Difficult to say. It will depend on the next inflation figures and the American presidential election.

In terms of statistics, currency traders will closely follow this week:

This Monday the New York Fed manufacturing index (Empire State Index);
Tuesday U.S. Retail Sales and Manufacturing Monthly Report;
Thursday the decision of the Bank of England and the weekly registrations for unemployment benefits in the United States;
Friday the first estimates of PMI activity barometers in the Euro Zone and in the United States.

At midday on the foreign exchange market, the Euro was trading against $1.0705 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 1.0704 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 1.0801 USD.

The expected profitability of this Forex strategy is 268 pips and the risk of loss is 97 pips.

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