FOREX Fundamental analysis for EUR/USD on June 20, 2024
The parity of the euro and the dollar is not expected. Eurosceptics do not plan to develop a Frexit plan that could bring down the exchange rate of the single currency and, as a result, the EUR/USD pair. Marine Le Pen confirmed that her National Unification party is ready to cooperate with Emmanuel Macron and complies with current legislation. Is it possible that after coming to power, the right will abandon their promises to reduce taxes and expand budget spending on social needs? If so, then the political crisis in France will end before it has even begun.
After the victory of the party For Freedom in the elections in the Netherlands, its leader Geert Wilders abandoned the idea of holding a referendum on leaving the EU. Georgia Meloni, who criticized the EU, turned into a team player after being appointed Prime Minister of Italy and cooperates with Brussels. Everyone understands that the political popularity of the euro outweighs its economic disadvantages. And it is unlikely that citizens of the European Union countries will want to change the euro to a depreciating local currency.
There is practically no chance of the EU breaking up. The main concerns of investors were related to the contradictions between the policy of the "National Association" and the European Union. Brussels will insist on compliance with the financial stability pact, which requires countries with debt above 60% of GDP to reduce the deficit to 3%. France, with its 111% debt, has a negative budget balance of 5.5%. Fiscal incentives, so widely promised by the right, can further increase it.
There is also no point in panicking about the growth of the yield differential of French and German bonds to the maximum since 2012. The main reason for the differential is the reduction in German debt rates based on expectations of a weakening of the ECB's monetary policy. French debt rates remain stable, and buyers are on them.
It is possible that the European Central Bank (ECB) will intervene in the situation, although it is unlikely to rescue Paris directly, preferring to purchase bonds of those Eurozone countries that are being sold off after the French ones. The fact that the ECB does not consider the current fluctuations in the European bond market to be critical indicates that the situation is not as dire as it seems.
We can say that politics will not drown the euro. However, this does not mean that EUR/USD quotes cannot fall from current values. According to Nordea, the Fed will keep the rate at 5.5% until the last and will reduce it only in December. On the contrary, the ECB will take two more steps to ease monetary policy in 2024, since one reduction in the deposit rate from 4% to 3.75% is not enough to support the weak Eurozone economy.
If we add to this the possible response of China in the trade war with the EU and the risks of Donald Trump's return to power with his protectionist policies, it becomes clear that EUR/USD is unlikely to be able to count on rapid growth. However, it is still possible to profit from forex trading on the news. The positive is suitable for purchases from the 1.0755 level and negative factors for sales from the 1.0725 level.