EUR/USD: American inflation and French legislative elections on the menu

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While France, the second economic power in the Euro Zone, is preparing to vote this Sunday for the first round of the legislative elections, the single currency remained restricted to close to $1.07, as the outcome of the vote is uncertain. The second round will take place a week later. Until then, currency traders remain attentive, not to say worried, while leafing through the programs of the forces involved, and must struggle in a tangle of “eccentric ideas and little lies”, according to the title of a market newsletter from Christopher Dembik, investment strategy advisor at Pictet AM.

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

The Euro remains under pressure since the publication on Friday of the “PMI” (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.

The main meeting of the week for currency traders is of course Sunday at 8:00 p.m., with the first estimates of the results of the first round of the legislative elections. Two days earlier, on Friday, the PCE (personal consumption expenditures) price index, the Fed’s preferred measure in its assessment of inflation, will be published. A significant deviation from the target would cause deviations in government bond yields and the currency pair itself. We will come back to this.

Immediately, currency traders have just become aware of the IFO business climate index in Germany, the leading economic power in the Euro Zone. The index came out lower at 88.6, missing the target.

At midday on the foreign exchange market, the Euro was trading against $1.0715 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 1.0726 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 290 pips and the risk of loss is 75.000000000001 pips.

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