EUR/USD: Surge of the single currency with French policy

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Against a backdrop of relative relief at the outcome of the first round of the French legislative elections, which virtually wipes out the feared scenario of an absolute majority for the Rassemblement National, the Euro/Dollar currency pair regained some area near 1.0760 $, at its highest since June 13.

France is behind Germany, the second economic power in the Euro Zone, and the balance of its budget is under scrutiny.

“Even if the probability of an absolute majority for the National Rally is not completely zero at this stage, the first declarations of the different political parties on possible withdrawals and therefore the opening of negotiations with a view to the second round will make the scenario of an absolute majority difficult”, explains Alexandre Baradez (IG France).

A period of negotiations thus begins, which will materialize at the level of the rest of the vote, by the withdrawal of numerous candidates, in the case of “triangular” or “quadrangular”, that is to say when 3 or 4 candidates are in a “ballot”.

“These negotiations will also probably make it possible to smooth over the most radical political proposals formulated during the campaign by certain political groups, these radical measures which are typically those which frighten the markets.”

In terms of statistics on Friday, sigh of relief! No unpleasant surprises regarding the recent publication of “PCE” prices (personal consumption index), THE Fed’s preferred measure in its assessment of inflation. Excluding food and energy, in so-called core data, prices increased by 0.1% in May, which is perfectly in line with the target. The monthly progression of the index, for the month of May, however, was increased from 0.2% to 0.3%.

Enough to immediately raise the probabilities of a federal rate cut in September to 68%, as at the beginning of the week. This probability had “melted” to 62% in the middle of the week as leading indicators of inflation, economic activity, durable goods orders and employment were published. As a reminder, the CME Group, which provides these probabilities via the Fed Watch tool, is based on the price dynamics of 30-day federal funds futures contracts.

Furthermore, the Chicago PMI (47.4), as well as the revised data from the American consumer confidence index (U-Mich), at 68.2, both exceeded expectations. The ISM manufacturing PMI is expected at 4:00 p.m. for the United States. In the immediate future, currency traders have come to terms with the final PMI data in the Euro Zone for the month of June, without any deviation from the first estimates. The industrial PMI stands at 45.6 points.

At midday on the foreign exchange market, the Euro was trading against $1.0760 approximately.

KEY GRAPHIC ELEMENTS

In high volatility, the Euro/Dollar currency pair has regained the upper part of a bearish oblique line, providing a short-term supply of oxygen. The technical signals are immediately contradictory and do not allow for a calm position to be taken. In all cases, we are suspending our sales lines.

MEDIUM TERM FORECAST

Considering the key graphic factors that we have mentioned, our opinion is neutral in the medium term on the Euro Dollar (EURUSD) parity.

We will maintain this neutral opinion as long as Euro Dollar (EURUSD) prices are positioned between support at 1.0550 USD and resistance at 1.0885 USD.

DAILY DATA CHART