EUR/USD: The French component weighs heavily on the PMI in the Euro Zone

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The Euro/Dollar currency pair maintained a negative bias, after the publication this morning of a battery of activity indicators in Europe. These PMIs (surveys of purchasing directors) came out clearly below expectations across the entire Euro Zone, whether for industry (45.6) or services (52.6). It will be recalled that by construction, a “score” above 50 points means an expansion of the sector considered, conversely a score below 50 indicates a contraction. These are the results in preliminary data for the current month.

Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, provided the following insight: “In France, the deterioration in the economic situation observed in June, both in the manufacturing and services sectors, could be attributable to the results of the last European elections and the announcement by President Emmanuel Macron of the holding of early elections on June 30 and July 7. This unexpected decision has most likely given rise to serious concerns among businesses regarding the economic policies of the next government. and pushed many of them to suspend their orders and investments Whatever the cause, France’s weak economic performance contributed significantly to the decline in the euro zone composite PMI index in June.

To follow equivalent indicators, for the United States, at 3:45 p.m. We will also closely follow the publication of sales of old housing, across the Atlantic, at 4 p.m.

Even though they closely monitor geopolitical risk on a global scale, forex traders remain understandably upset by E’s decision. Macron to provoke new legislative elections. The market fears that populist groups, such as the National Rally, will implement policies that would weaken France’s already shaky public finances.

“At this stage, investors are immersed in uncertainty. It must be said that none of the possible scenarios currently seems favorable to the financial markets. Indeed, while the trend in French public finances was already not particularly bright, the “The prospect of particularly wasteful programs at both extremes raises fears of the worst for French debt”, explains Thomas Giudici, head of bond management at Auris Gestion.

The news was dense on the monetary policy side on Thursday, since no less than 3 central banks on the old continent delivered a verdict.

The Swiss National Bank (SNB) has decided to lower its rates for a second time since the start of the year, bringing its main key rate to 1.25%.

This measure was “probably more influenced by the appreciation of the franc over the last two months than by a perceived easing of domestic inflationary pressures”, underlines Capital Economics. “In our view, the SNB is unlikely to cut rates further this year, as domestic demand is already starting to recover and inflation will remain at its current level,” the think tank adds.

The Central Bank of Norway has opted for the status quo, maintaining its key rates at 4.5% and plans to leave them unchanged until the end of the year.

Ditto for the Bank of England which, unsurprisingly, maintained its interest rates at 5.25%. “We therefore remain committed to our long-standing position of an initial cut of 25 basis points on August 1, followed by a quarterly cut until rates fall to 3.50% at the start of the year. year 2026”, estimate for their part the economists at Nomura.

At midday on the foreign exchange market, the Euro was trading against $1.0690 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 1.0685 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 1.0781 USD.

The expected profitability of this Forex strategy is 249 pips and the risk of loss is 96 pips.

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