FOREX Fundamental analysis for EUR/USD on July 8, 2024
Markets do not warn in advance about their movements, they act quickly, crossing out established forex trading methods, and only then analysts begin to explain the nature of some impulse. Thus, the victory of the New Popular Front in the French elections caused an initial negative reaction to the euro. The left-wing parties are demanding a reduction in the retirement age from 64 to 60, an increase in salaries for civil servants and the return of the wealth tax, which will require an additional €250 billion by 2027. This caused a decline in the EUR/USD pair at the beginning of the week, but the decline was quickly compensated. In fact, the situation is not as threatening as it might seem at first glance.
The political situation in France
France won a parliament without a clear majority, and although the New Popular Front and its allies are demanding the implementation of their programs, there are also positive aspects. The National Rally failed to achieve a majority of 289 seats and slipped to third place with 143 seats, losing to Renaissance, which gained 156 seats. The centrists have strengthened their positions, which allows Emmanuel Macron to create a broad coalition. For sure, this fact will be positively perceived by the markets. In any case, the yield spread of French and German bonds narrowed, and EUR/USD quickly recovered after the morning gap.
The economic situation in the United States
In the US, the labor market situation is showing signs of slowing down. In June, 209 thousand new jobs were created, which is higher than expected, but the data for April and May were revised downward by 110 thousand. Average wages increased by 3.9%, which is the slowest pace in the last three years. The unemployment rate has increased by 0.4 percentage points to 4.1% over the past three months. According to Sahm's rule of thumb, if unemployment increases by 0.5 percentage points or more within three months, we get a signal that a recession is approaching.
The slowdown in the American economy strengthens the position of the "pigeons" in the Fed, which may lead to a reduction in the federal funds rate. The probability of monetary policy easing in July is low, but the Central Bank may begin a cycle of monetary expansion in September. The futures market estimates the chances of such a scenario at 76%.
Political risks in France and the slowdown in the US labor market have already been taken into account in the current EUR/USD quotes. In order for growth to continue in the direction of 1.09 and 1.0945, inflation should show a decrease in June, which will force the Fed to start an easing cycle. Otherwise, the couple may start
EUR/USD Technical Analysis
Last week, the short-term EUR/USD trend changed direction to an upward one. The trend line 1.0804 - 1.0792 was broken, and the pair went to the target zone 1.0943 - 1.0918.
We will consider new purchases after a downward correction to strong support levels, which are the area (A) 1.0758 - 1.0750 and the area (B) 1.0716 - 1.0704. If the pair corrects to any of these zones, then it will be possible to form long positions according to the pattern with the nearest target at the maximum of July 5.consolidate near current levels. We hold long positions formed from 1,071-1,072.