EUR/USD: Germany and France worry currency traders

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The Euro remained under pressure on Tuesday, the day after the publication of an IFO business climate index in Germany, and after the publication on Friday of the “PMI” (surveys of purchasing managers), which came out clearly below expectations. on the scale of 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, immediately provided the following insight: “In France, the deterioration in the economic situation observed in June, both in the manufacturing sector and in the services sector, could be attributable to 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 strongly contributed to the decline in the euro zone composite PMI index in June. .”

Roughly speaking, two countries, and not the least since they are the two main economic powers of the Euro Zone, are of concern.

“First of all we find Germany and its still depressed manufacturing sector,” for Thomas Giudici, head of bond management at Auris Gestion. “In addition to the drop in demand, the morale of business leaders is probably also impacted by the renewed tensions with China, on which the country is particularly dependent”

“The second country is none other than France,” continues the manager.

“Quite logically, the uncertainties linked to the political situation penalize the activity prospects of purchasing managers. From the point of view of the financial markets, none of the scenarios currently on the table seem really favorable to a return to favor of French assets Currently, the question is therefore more whether the correction observed in French stocks fully integrates the probable first place (majority or relative) of the National Rally.”

The first round of the legislative vote takes place this Sunday.

On the agenda this Tuesday, to follow at 4:00 p.m. the consumer confidence index (Conference Board) and the manufacturing index from the Richmond Fed. Eyes are already on Friday’s publication of PCE prices, the Fed’s preferred measure in its assessment of price dynamics.

At midday on the foreign exchange market, the Euro was trading against $1.0730 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 1.0729 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 1.0813 USD.

The expected profitability of this Forex strategy is 293 pips and the risk of loss is 84 pips.

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