FOREX Fundamental analysis for EUR/USD on July 1, 2024
The circumstances turned out well. The slowdown in inflation in the United States and expectations that Marine Le Pen's party is unlikely to achieve an absolute majority in Parliament allowed the EURUSD to break above the resistance of 1.0725. Political tension will continue to put pressure on the euro until the second round of elections, but its influence has already weakened, which creates prerequisites for the growth of the main currency pair.
According to Elabe, in the first round, the National Rally won 33% of the vote, the New Popular Front – 29%, and the Revival of Emmanuel Macron – 22%. This is projected at 255-295 seats in the National Assembly for the right, 120-140 for the left and 90-125 for Macron's party and his allies. Marine Le Pen's opponents must join forces to prevent her party from gaining an absolute majority of 289 seats. If her party succeeds, Jordan Bardella will become the new prime minister.
The most negative scenario for the markets would be the success of the New Popular Front. The victory of the National Rally increases the likelihood of a repeat of the Italian scenario, when the right-wingers, who criticized the EU before the elections, then began to cooperate with Brussels. In any case, the results of the first round reduced the difference in French and German bond yields and contributed to the growth of EURUSD.
The hammer of political instability is gradually moving away from the euro, while the anvil in the form of a slowdown in the US economy continues to limit the dollar. In May, the growth rate of the American index of personal consumption expenditures decreased from 2.7% to 2.6% in annual terms and from 0.3% to 0.1% on a monthly basis. The core PCE index remained unchanged from the previous month and slowed from 2.8% to 2.6% year-on-year. Markets have almost stopped expecting inflation to accelerate again, as at the beginning of the year, and estimate the probability of two Fed rate cuts in 2024 at 95%. The chances of a rate cut in September are 63%.
Observing the cooling of the US economy, sooner or later you will want to prevent its complete freezing. The Fed is on the verge of declaring victory over inflation, and, according to Oxford Economics, the labor market report is becoming a more important indicator than CPI and PCE statistics. Weak employment data for April lifted the EURUSD rate, while strong data for May caused the pair to fall.
I believe that the June NFP report will help you choose forex trading strategies for dollar pairs for the coming month. Before its release, the EURUSD will move in versatile fluctuations. The elections in France have not yet been completed, and on July 4 there will be a vote in Britain. In addition, a slowdown in inflation in the Eurozone may put pressure on the euro. We maintain long positions open from 1.0725, counting on further weakening of the US labor market.
EUR/USD Technical analysis
EUR/USD corrects the short-term downtrend. At the moment, the pair is breaking through the resistance area (A) 1.0758 - 1.0750. If the correction continues, it will be possible to wait for the test of the resistance area (B) 1.0804 - 1.0792. Zone (B) is the boundary of the trend, and from here we will consider selling the instrument with a target at the minimum of June 26.
If EUR/USD returns to the 1.0750 level during trading, a sell pattern will form. In this case, it will be possible to consider short positions with the first target at the 1.0712 level and with the second target at the June 26 minimum.