EUR/USD: Integrated risk premium?

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The Euro balanced against the Dollar on Monday, the day after the second round of the French legislative elections. Last week, the Dollar fell with the prospect of a federal rate cut in September becoming increasingly clear.

“The new left-wing Popular Front has clearly exceeded expectations. However, it is unlikely to govern. We expect a centrist/technocrat prime minister to eventually be installed,” Nomura strategists said.

According to the final data provided by the Ministry of the Interior, the New Popular Front Alliance comes in first with 182 seats, Ensemble cushions its fall with 168 seats, and the National Rally, although significantly increasing its contingent of deputies, only comes in third position, with 143 seats.

“The risk premium on the euro seems to have already partly faded and we do not expect a surge in the EURUSD due to the absence of a clear majority,” according to Claudia Panseri, CIO of UBS Wealth Management France.

Across the Atlantic, last week, several statistics argued for a soft landing scenario for the American economy, likely to ease government bond yields and increase the probability of a federal rate cut in September. The ISM Services index in particular, falling below the 50 mark, surprised the financial community, and the federal employment report, published on Friday, did not contain any bad surprises.

First of all, the unemployment rate, which was expected to be stable at 4.0% of the working population, is increasing slightly to 4.1%. On the other hand, job creations in the private sector (excluding agriculture) amount to 206,000, 15,000 units above the target. Nothing to report for average hourly wages, whose monthly dynamics are stable and in line with expectations, at +0.3%. Over one year, wages have slowed to +3.9%.

“Jerome Powell could give indications in this direction during his two speeches planned this week, tomorrow and Wednesday,” anticipates Christopher Dembik, investment strategy advisor at Pictet AM.

In the immediate future, traders are dealing with the publication in the morning of the Sentix investor confidence index, which fell to -7.3.

At midday on the foreign exchange market, the Euro was trading against $1,0840 approximately.

KEY GRAPHIC ELEMENTS

In a strong volatility in week 27, the Euro / Dollar currency pair regained the upper part of a bearish oblique line, constituting a short-term oxygen supply. The technical signals are contradictory in the immediate future and do not allow a serene position-taking. In any case, we are suspending our sell 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 the Euro Dollar (EURUSD) parity rates are positioned between the support at 1.0758 USD and the resistance at 1.0885 USD.

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