FOREX Fundamental analysis for EUR/USD on June 2, 2024
The market is tired of selling euros, tired of France with its eurosceptics. I'm tired of being afraid of China's retaliatory measures against EU tariffs on electric vehicle imports. Investors are ready to get rid of the US dollar, as they expect the Fed's monetary policy easing cycle to begin soon. This is how the EURUSD rebound from two-month lows can be explained. But will the buyers have enough strength to develop an offensive?
China has offered Germany to reduce import duties on cars equipped with large-volume engines from 15% to zero in exchange for the EU canceling new tariffs on electric vehicles from China. Prior to that, there were rumors of a new trade war in the market, since an increase in European duties to 48% could cause a rise in Chinese duties to 25%. The German car industry would be under attack. But the worst was avoided, and EURUSD took advantage of this situation.
The conciliatory rhetoric of the French National Rally party, which is leading in the polls, also supported the euro. The party calls for calm and criticizes Finance Minister Bruno Le Maire, as well as President Emmanuel Macron for stirring up passions about the crisis and the civil war. The national rally intends to follow the trajectory of deficit reduction so that France meets the criteria of the EU Financial Stability Pact.
This position reassures investors who feared that the coming to power of Marine Le Pen would increase the budget deficit and public debt, which currently amount to 5.5% and 111% of GDP. This could increase the yield spread of French and German bonds to 100 bps. It is clear that the higher the political risks, the more likely the EURUSD will fall.
But if the euro sheds fears about trade wars and the crisis in France, the US dollar has remembered its weaknesses. The president of the Federal Reserve Bank of San Francisco, Mary Daly, noted that the situation in the labor market is deteriorating. Unemployment is growing slowly, but it may soon jump sharply. High inflation is not the only problem for the Fed, and lowering the federal funds rate could mitigate the effects of a cooling labor market. German colleague Isabelle Schnabel noted that the policy differences between the ECB and the Fed are insignificant and temporary.
The black streak for the euro may end. But for the EURUSD to grow steadily, signals of further cooling of the US economy are needed. Nevertheless, we do not change our forex trading strategy and we will consider the pair's return below 1.0735 as a signal for sales, since the old risks may return at any moment.
Technical analysis for EUR/USD
EURUSD remains in a short-term downtrend. After an unsuccessful resistance test (A) of 1.0760 - 1.0751, which ended with a rebound, the pair went down to the sellers' first target of 1.0714. The second target is the minimum of June 14th. In case of an update of the extremum, EURUSD will go to test the target zone in the range of 1.0664 - 1.0638.
At the same time, we note that yesterday closed with an increase. We decided to close the rest of the sales at breakeven, as we expect buyers to try to break through the resistance area (A) up. If successful, the pair may reach the resistance area (B) 1.0806 - 1.0793 within the correction. We do not think that the bulls will be able to push the quote higher, so we will form short positions from zone B.