EUR/USD: One eye on monetary policy, the other on politics in general

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While the Euro is suffering from fears of political immobility, or even paralysis, in France, and the Dollar is easing with the increasingly clear prospect of a rate cut at the start of the school year, the flagship currency pair is neutralising near 1.0820, at the end of the formation of a short pennant.

If the risk of an absolute majority of the National Rally, once feared by the market for multiple reasons, notably budgetary, everything is still to be built. Negotiations between political camps will begin, in order to be able, next step, to form a government.

“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 lack of a clear majority,” according to Claudia Panseri, CIO of UBS Wealth Management France. “A risk premium should continue to be applied to French assets. A weak French government, less committed to reducing the budget deficit and undertaking reforms, could also slow the euro,” adds César Perez Ruiz, Chief Investment Officer and CIO at Pictet Wealth Management.

Traders were paying close attention yesterday to the hearing of the Chairman of the US Federal Reserve (Fed), Jerome Powell, at 4 p.m., before a Banking Committee of the US Senate. The central banker’s comments are currently being dissected by markets looking for clues on the Fed’s intentions regarding its future monetary policy.

The Fed chairman said inflation “remains above” the monetary institution’s 2% target, but that “further good data would strengthen” the case for lower rates. He also said that too much tightness for too long “could unduly weaken economic activity and employment.” The central banker will next appear before the US Senate on Wednesday.

As a reminder, on Friday, the employment report did not make any waves. First of all, the unemployment rate, which was expected to be stable at 4.0% of the active population, increased slightly to 4.1%. On the other hand, job creations in the private sector (excluding agriculture) came 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 slowed to +3.9%.

“This is the type of jobs report the Federal Reserve has been waiting for: softer, but still decent, data that could justify two rate cuts this year,” said Florian Ielpo, head of macroeconomic research at Lombard Odier Investment Managers.

At midday on the foreign exchange market, the Euro was trading against $1.0825 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.

DAILY DATA CHART