FOREX Fundamental analysis for EUR/USD on June 10, 2024
Forex currency trading is based on economic factors, but at the moment it is political events that have had a decisive impact on the euro exchange rate. The strong report on the US labor market for May turned out to be a shock for buyers of EUR/USD. The impressive increase in employment by 272,000, the retention of unemployment at 4% for 30 months and steady wage growth indicate the strength of the US economy. But the trouble does not come alone: the dissolution of the National Assembly (Parliament) in France and the appointment of the first snap parliamentary elections since 1997 have aggravated the situation for the euro.
Emmanuel Macron's decision to schedule elections for June 30 and July 7 was controversial, but the French president said he could not help but react to his party's defeat in the European elections. The Renaissance party, which relied on European unity, received half as many votes as the National Association with its 31%. Eurosceptics have skillfully taken advantage of the discontent of the French due to inflation, security problems and migration.
The situation is reminiscent of 2012, when the fear of Marine Le Pen coming to power was one of the key factors in the fall of the euro from $1.33 to $1.21. Newly emerging political risks and threats of Eurozone fragmentation could lead EUR/USD to parity, especially if the Fed does not lower the federal funds rate in 2024. The chances of this have increased after an unexpectedly strong report on the US labor market.
Employment growth may be driven by record immigration, but there is no denying that the American economy is developing unevenly. The rich continue to spend money, which manifests itself in an increase in employment in the service sector and an increase in expenses, while the poor are limited to purchases of basic necessities. Unsurprisingly, positive data on the United States alternate with negative ones.
For the Fed, a strong labor market is a reason to revise forecasts. In March, FOMC members expected three acts of monetary expansion. According to a Bloomberg survey, 41% of experts expect this estimate to be reduced to two, and the same number of respondents predict one decrease. This coincides with the expectations of the futures market, which predicts 1-2 cuts in the federal funds rate in 2024. The chances of a rate cut in September dropped from almost 70% to 52%.
The collapse of EUR/USD would not have been possible without asset managers, who have been building up short positions on the US dollar for six weeks in a row, which has become the longest series since 2022.
The idea of a slowdown in the American economy turned out to be wrong. Now is the time to reconsider your positions. Sustained inflation in the United States may change the Fed's approach to the federal funds rate, and expectations of parliamentary elections in France may lead to a further fall in EUR/USD in the direction of 1.06 and 1.05. We will either sell on the market, or wait for data on the American CPI.