EUR/USD: the market is being shaken by political uncertainty

AUD/USD trading idea on July 5, 2024AUD/USD showed steady growth during the Friday trading session, maintaining the "bullish" momentum that originated at the beginning of the week. The pair is currently trading around 0.6730, updating local highs that have not been seen since January 2024.The Australian dollar is supported by the divergence in monetary policy of the US Federal Reserve System (Fed) and the Reserve Bank of Australia (RBA). The market expects the Fed to start cutting interest rates at its September meeting. According to CME FedWatch, the probability of such a scenario increased from 60% to 72.6% last week. In addition, two Fed rate cuts are possible this year, but the real decisions will depend on macroeconomic data, which is disappointing so far. In particular, the American economy slowed down in the second quarter due to a decrease in activity in the service sector. In particular, the PMI index for the US services sector fell to 48.8, which is lower than expectations of 52.5 and the previous value of 53.8.While the Fed is preparing to cut rates, the RBA, on the contrary, may tighten monetary policy if inflation continues to rise. In May, retail sales increased by 0.6%, which is significantly higher than forecasts. The probability of a rate hike at the next RBA meeting, which will be held on August 6, is 25%, and increases to 50% at subsequent meetings.Taking into account all the above, the readings of technical indicators and graphical patterns, we believe that AUD/USD has the potential for further growth above the 0.6800 level.Trading recommendationsBuy Stop: 0.6750Take Profit (TP): 0.6850Stop Loss (SL): 0.6720

FOREX Fundamental analysis for EUR/USD on July 5, 2024That's it, the game is over. Polls predict that the right will win 190 to 250 out of 577 seats in the French National Assembly. European bond yield spreads are narrowing, and investors are actively buying up cheaper French securities. The worst is over for the EUR/USD bulls, especially considering that the ECB is in no hurry to ease monetary policy, while weak economic data from the United States may force the Fed to cut rates as early as in September.The New People's Front and the Renaissance Party joined forces to prevent the right from coming to power, and it seems that they succeeded. If the National Rally does not get an absolute majority of 289 seats in Parliament, there will be no increase in public spending and, consequently, no confrontation with the EU. You can forget about Frexit and the parity of the euro with the dollar.Despite Morgan Stanley's warnings about the possible fall of the euro to the pivot level of $1.05 against the backdrop of a weak Eurozone economy and political risks in Germany, the derivatives market demonstrates that the "bearish" train for EUR/USD left after the first round of elections in France. The risks of a reversal in the euro are growing day by day.The minutes of the ECB's June meeting showed that only one member of the Governing Council voted to keep the deposit rate at 4%, while the rest supported a reduction to 3.75%. However, officials are concerned about high wage growth and persistent inflation, especially in the service sector. New headwinds for disinflation may arise due to geopolitical fragmentation, supply chain disruptions, rising commodity prices and protectionism.Such rhetoric practically excludes a reduction in the deposit rate in July and casts doubt on two additional acts of ECB monetary expansion in 2024. At the same time, weak data on US private sector employment, jobless claims, trade balance and PMI in the services sector increased the likelihood of a Fed rate cut from 5.5% to 5% this year.If the non-agricultural employment data for June turns out to be disappointing, traders will sell the dollar. Especially if wage growth slows to 3.9%, which will be the slowest pace in the last three years.In my opinion, weak statistics on the US labor market will allow EUR/USD to continue growing to the levels of 1.0865 and 1.09. This will become the basis for strengthening long positions formed in the range of 1.071-1.072.EUR/USD Technical analysisThe short-term downward trend of EUR/USD is changing to an upward one. If today the pair can gain a foothold above the 1.0804 level, then from next week we will consider buying the eurodollar with a target in the area of 1.0943 - 1.0918. It is desirable to form an entry into long positions from strong support levels. These are the areas (A) 1.0742 - 1.0733 and (B) 1.0700 - 1.0687.If on Friday EUR/USD does return to the support level of 1.0792 and forms a sell pattern, then it will be possible to use this signal and open a sale with the first target at 1.0742.

On Thursday, GBP/USD is consolidating around the 1.2745 mark, which coincides with local highs on June 13. The volatility of currency pairs in the market is low today due to the weekend on trading floors in the United States on the occasion of Independence Day celebrations. The attention of market participants is focused on the parliamentary elections in the UK, the outcome of which may lead to a change of prime minister and the formation of a new government. According to polls, the opposition Labour Party has every chance of defeating Rishi Sunak's party.In addition, investors are evaluating the latest statistics from the UK. The index of business activity in the service sector in June fell to 52.1 points from 52.9 points, which is better than expected (51.2 points). The composite index also showed a decrease to 52.3 points from 53.0 points, which is higher than the projected 51.7 points. This indicates a slow but still ongoing recovery of the sector, despite the uncertainty surrounding the elections. In the United States, the ISM index of business activity in the service sector fell to 48.8 points from 53.8 points, against the expected 52.5 points, which came as a surprise to the market. At the same time, the S&P Global index improved slightly to 55.3 points from 55.1 points.The minutes of the June meeting of the US Federal Reserve, published the day before, did not cause a significant market reaction. Earlier, Fed Chairman Jerome Powell confirmed a cautious approach to lowering rates, stressing that this requires more data confirming a decrease in inflation to the target 2%.Technical analysis for GBP/USD for todayThe Bollinger bands indicator on the daily chart shows a smooth upward reversal, which indicates a possible continuation of growth. The MACD is growing, maintaining a strong buy signal. Stochastic shows a confident upward movement, but proximity to the maximum values indicates possible risks of overbought pound in the short term.Trading Recommendations1. Buy. It is recommended to open with a confident breakdown up to the level of 1.2776 with a target of 1.2860. The stop loss is set at 1.2730.2. Sell. Consider when the "bearish" dynamics returns and the breakdown down to the level of 1.2730 with a target of 1.2650. The stop loss is set at 1.2776.Keep a close eye on developments in the UK elections and macroeconomic data, which may significantly affect the further movement of the GBP/USD pair.

FOREX Fundamental analysis for EUR/USD on July 4, 2024Despite the Fed's statements that they are in no hurry to cut rates, in the end, the regulator will still have to do it. Recent US economic data indicate the need for this step, and earlier than expected. Disappointing labor market statistics from ADP increased the probability of monetary expansion starting in September from 63% to 73%, lowered Treasury yields and allowed the S&P 500 to reach a 33rd record in 2024. Through the correlation of currencies and indices, this created favorable conditions for the growth of EUR/USD, which buyers took advantage of that.Data on private sector employment from ADP and a serious increase in the number of repeated applications for unemployment benefits for the ninth week in a row indicate that everything is not as good in the American labor market as the monetary authorities say. The slowdown in the US services PMI index at the fastest pace in four years and the growth of the foreign trade deficit to its maximum since 2022 show that problems in the United States economy are snowballing. The Fed will have to respond by easing policy, and the Fed is starting to prepare investors for this scenarioIn the minutes of the June FOMC meeting, some officials noted that monetary policy should play back economic weakness. Some Fed officials believe that high immigration creates imbalances in the labor market when rising unemployment is well combined with high employment. They believe that the forecasts of non-farm payrolls are clearly overstated.This approach increases investors' interest in the June US Labor market (NFP) report and indicates that the Fed may signal the beginning of monetary policy easing as early as September. This will create additional difficulties for EUR/USD sellers.Meanwhile, the political situation in France has stabilized. The yield differential of French and German bonds is decreasing against the background of the formation of a coalition of center-left parties. These parties withdrew their candidates in order to prevent the right from gaining an absolute majority in parliament. If the National Front does not get a majority, then Frexit and the collapse of EUR/USD to parity will go into oblivion.Does this mean that the US dollar is capitulating? Unlikely. The Trump factor is still important. After the debate, the Republican's advantage over Joe Biden reached 6 points — 48% vs. 42%. This is the largest gap in the Wall Street Journal polls since 2021. At the same time, 80% of respondents believe that Biden is too old for a new term, 63% are dissatisfied with his work, and less than 40% approve of his policies.In short, wherever EUR/USD moves, you can be sure of one thing — it will be a long-term movement. The easing of monetary policy will push the EUR/USD quotes up, but the Trump factor will limit the pair's growth. However, as long as the quote stays above $1,076, you don't have to worry about previously opened purchases. We are holding long positions.EUR/USD Technical analysisToday, the EUR/USD pair is showing signs of correction, as a result of which it reached the border area of the short-term downtrend within 1.0804 - 1.0792. Sellers did not let buyers go higher, which can be regarded as a signal for the formation of short positions with target marks of 1.0735 and 1.0666.However, if the resistance of 1.0804 - 1.0792 is broken up, then we can talk about a trend change to an upward one. In this case, starting tomorrow, we can consider purchases with a target in the area of 1.0943 - 1.0918.Current support: 1.0804 - 1.0792.Nearest targets for short positions: 1.0735 and 1.0666.Potential targets for long positions at the breakdown of the area 1.0804 - 1.0792 - 1.0943 - 1.0918 .

Trading idea for EUR/GBP on July 3, 2024On Wednesday, the most popular forex cross EUR/GBP shows a moderate recovery, trading near 0.8470. Euro buyers became more active after yesterday's sell-off, when the pair retreated from the local high of 0.8500.Earlier, the European currency was under pressure due to inflation data in the Eurozone. The preliminary Harmonized Consumer Price Index (HICP) of the Eurozone in June amounted to 2.5% in annual terms against 2.6% in the previous month. The base indicator remained at 2.9% in annual terms with a forecast of 2.8%, and changed from 0.4% to 0.3% on a monthly basis. In response, officials of the European Central Bank (ECB) are being cautious when talking about the prospects of the regulator's monetary policy. ECB President Christine Lagarde noted that the Central Bank will need more time to ensure a steady decline in inflation to the target level of 2%, and therefore monetary policy easing will take place gradually and slowly. Lagarde also stressed that the risks of recession have not disappeared anywhere, and the prospects for economic growth remain uncertain. ECB chief Economist Philip Lane said that the data for June was in line with ECB expectations, which means there is a high probability of further rate cuts.Although the prospect of easing European monetary policy is a negative factor for the euro, its impact can only be assessed over time. This week, traders should focus on the parliamentary elections in England, which will be held tomorrow. British Prime Minister Rishi Sunak admitted the possibility of the defeat of the Conservative Party led by him in the elections, after which the winning party will form a new government. Political uncertainty in the UK may put pressure on the pound in the coming days, which creates the potential for the EUR/GBP pair to rise above 0.8500.Trade recommendation: Buy Stop 0.8500, target 0.8650, stop loss 0.8450.

FOREX Fundamental analysis for EUR/USD on July 3, 2024At a forum in Portuguese Sintra, Jerome Powell did not surprise the markets by saying that the strong US economy gives the Fed time to think. However, the rhetoric of the head of the Fed was perceived by investors as "dovish". This led to a decrease in Treasury bond yields, which rose markedly after the Joe Biden and Donald Trump debates, which allowed EURUSD buyers to go on the offensive. Isn't it time for investors to reconsider forex trading strategies after the words of the chairman of the Federal Reserve?It was probably his reasoning that recent statistics indicate the return of the US economy to a disinflationary path. Powell stressed that the Fed wants to make sure of this before starting to adjust rates. Perhaps the frequent mention of the word "progress" in the fight against inflation impressed investors. But, most likely, the essence lies deeper.Jerome Powell also took the liberty of criticizing the Joe Biden administration for taking excessive risks associated with a huge budget deficit in full employment. He stated that it is impossible to manage such deficit levels for a long time in good economic times, calling on the president to eliminate the financial imbalance. It is clear that his words are directed not only at the Democrats.But if Joe Biden plans to extend the tax relief program, which has been in effect since 2017 only for those whose income does not exceed $400 thousand per year, then everyone is equal for Donald Trump. His victory in the presidential election will further expand the budget deficit, which, according to forecasts by the Congressional Budget Office, will reach $1.9 trillion in 2024, which is 7% of GDP.Trump's policy of raising tariffs on imports will help to accelerate inflation, forcing the Fed to keep rates at 5.5% for a long time, which significantly increases the risks of recession. However, this also contributes to the growth of the yield of treasuries and supports the US dollar.Investors, and the Fed itself, are afraid of Trump's return to the White House. Unlike Biden, Trump has a habit of interfering in the affairs of the Central Bank. There are rumors that the Fed may cut rates in September not only because of the cooling of the economy, but also to support the current government. Powell, speaking about the budget deficit, added arguments in favor of an early start of monetary expansion.The euro supports the reluctance of core inflation and service prices to decline from their May levels of 2.9% and 4.1%. In addition, Christine Lagarde has unequivocally stated that the ECB's actions are incomplete.I think investors are overestimating the situation. The Fed will remain neutral, and the federal funds rate cut in September will occur against the backdrop of a cooling US economy. Employment data for June will certainly confirm this, providing an opportunity to strengthen long positions on EURUSD from the area of 1,071-1,072.EUR/USD Technical analysisYesterday, EUR/USD reached the sellers' first target, declining from the resistance area (A) 1.0758 - 1.0750. It was the 1.0712 level. Then the pair tested the resistance area (A) again. Today, buyers are likely to try to break through it and continue strengthening towards the resistance area (B) 1.0804 - 1.0792. After the resistance test (B), we suggest considering new sales of the instrument with the first target at 1.0735.To change the trend and make purchases, the bulls need to fix the quote above the 1.0804 level. In this case, it will be possible to consider long positions with a target in the range of 1.0943 - 1.0918.

USD/CAD analysis on July 2, 2024On Tuesday, USD/CAD rose moderately, updating local highs from June 18 and testing the level of 1.3750 for an upward breakout. Activity on the instrument remains high despite the fact that the macroeconomic background from the United States does not contribute to an upward movement.Statistics on the personal consumption expenditure price index were in line with analysts' forecasts, so the market reaction was restrained. In May, the base index decreased from 2.8% to 2.6% in annual terms and from 0.3% to 0.1% on a monthly basis, while the broader index adjusted from 2.7% to 2.6% and from 0.3% to 0.0%. These data did not affect expectations of an interest rate cut by the US Federal Reserve. It is likely that the local driver for the regulator's decision will be the June labor market report, which will be released on Friday. Traders expect that the number of new jobs outside the agricultural sector will decrease from 272.0 thousand to 195.0 thousand, the average hourly wage will slow down from 4.1% to 3.9% in annual terms and from 0.4% to 0.3% monthly, and the unemployment rate will remain at 4.0%. Tomorrow, the minutes of the Fed's June meeting will be published, which will clarify the sentiments of FOMC members regarding the prospects for rate cuts. Analysts expect the first rate cut of 25 basis points in September.A report on the Canadian labor market will also be released on Friday. Forecasts suggest a moderate slowdown in employment growth in June from 26.7 thousand to 22.5 thousand, the unemployment rate may rise from 6.2% to 6.3%, and the average hourly wage will be 5.0-5.2%.On the daily chart, the Bollinger band indicator is trying to turn into a horizontal plane. The MACD indicator is growing, maintaining an uncertain buy signal. Stochastic is approaching its maximum values.It is recommended to open long positions only after a confident breakout of the 1.3762 level with a target of 1.3845. We set the stop loss at 1.3720.If the price bounces off the 1.3762 level and breaks down to 1.3733, we get a signal to form sales with a target of 1.3675. In this case, we will set the stop loss at 1.3762.

USD/JPY is steadily strengthening, updating record highs. On Tuesday, the pair is trading near the 161.65 mark, but without much activity, as traders are waiting for new market triggers.Yesterday, the main attention of market participants was focused on Japanese business activity data. The Tankan business activity index in the service sector for the second quarter decreased from 34.0 to 33.0 points, the Bank of Japan's Tankan index of large manufacturers increased from 11.0 to 13.0 points, although analysts expected to see the same value, and the manufacturing sector index in June decreased from 50.1 to 50.0 points, testing a critical level of stagnation. The study showed that production volumes are growing due to the fulfillment of orders already received, while the number of new orders remains low due to limited external demand for Japanese products, especially automobiles and semiconductors. A slowdown in the industrial sector could exacerbate the economic downturn, and the government has already revised its forecasts.At the same time, business activity in the US manufacturing sector from S&P Global decreased from 51.7 to 51.6 points, but remained above the key level of 50.0. The business activity index from the Institute of Supply Management (ISM) decreased from 48.7 to 48.5 points, despite forecasts of 49.1 points. The main attention is now focused on Friday's report on the US labor market. It is expected that the number of new jobs created outside the agricultural sector will decrease from 272.0 thousand. to 195.0 thousand, the average hourly wage will slow down from 4.1% to 3.9% in annual terms and from 0.4% to 0.3% on a monthly basis, and the unemployment rate will remain at 4.0%. These data will help clarify the prospects for a reduction in the US Federal Reserve interest rate by the end of the year. The main scenario assumes a rate cut in September, and a total of one or a maximum of two cuts of 25 basis points are expected.On the daily chart, the Bollinger Bands indicator shows steady growth, as does the MACD, which has formed a buy signal. Stochastic is near the maximum values.It is recommended to open long positions after a confident breakdown up to the level of 162.00. The target is 163.00. We set the stop loss at the level of 161.30.If the pair breaks through the 161.30 mark down, we will get a sales signal with a target at 159.92. We will place a stop loss at 162.00.